Modeling corr in fictional Collateralized ___ Obligation based on options

KeithBlackwell · November 6th, 2007, 7:47 pm

If you wanted to make up and model a Collateralized ____ Obligation that was based on options where payouts were based on selling options and notional loss amounts where taken from options that ended up in the money. How would you model the corr of such a product in order to price it given, say, 10 underlying assets. It's pretty easy to model the price paths of 10 separate, completely independent price paths, as soon as you add 45 rho's or whatever, it becomes a bit harder. This is for a paper I'm writing at school, so any help would be appreciated. Keith