June 12th, 2007, 7:41 am
Hi everybody, I am totally new here.Does anybody have experience of pricing basket options under Heston model? A project suggests that the 'Black-Scholes correlations might transform when it moves to Heston model'. I think the correlation here refers to the those between assets in the basket. Does anyone have any idea on this? Such as why the correlations will change or anything comes up in your mind.Besides, when a trader mention 'the Black-Scholes correlations of an index basket are well defined', does 'index basket' refer to a basket which is a weight average of several indices? Do you have any different options?I tried to search on some databases but found little about this 'Transformation'. Really appreciate if you can help! Any help...