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option on funds
Hi,Where could I find some information about the pricing of option on funds ? Same question about an option of a basket of funds ?Could I price it like an option of equity or a option of basket of equities ?What about the pricing if the funds is too small ? I guess there is some trouble to hedge the option ? Could be the option replicate by a on option on the benchmark of the fund ?Regards,
option on funds
depends on the fund.if a mutual fund, then..1. find a benchmark (spot and vol)2. think up of the right fwds3. price it up 4. hedge it with benchmark (or with the fund for delta)
option on funds
Hello,You cannot price it as an option on a basket of equity as you will not know live what is the composition (secret of the AM !).I suggest two methods :- find possible benchmarks whenever possible (R squared will tell you how good your regression is). In this case you will have an estimation of the NAV and volatility, plus of the greeks- in any other case, follow the last quoted values for the fund and estimate volatility by historical approach -I know this is poor but in some cases there are no other ways-.Hope this helps,Best regards