David Lee deposited Valuation of Shrinking Basket Option Based on the Worst Return. in the group Scholarly Communication on Humanities Commons 6 months, 1 week ago
A model is used to price a derivative whose payoff depends on returns over N periods on a shrinking basket of originally N assets. Each period, the worst return is added to the cumulative sum after being capped and floored, and the corresponding asset removed from the basket (hence a shrinking basket). The cap and floor rates are given for each period and the total cumulative sum is also constrained by a global cap and floor. The payment thus represents a path dependent option.