Correlation Option
Use
The risk of changing correlations is covered by a correlation option.
This option reflects the difference in value between a basket option and the sum of all participating currency strips as plain vanilla options.
Features
A correlation option is cash settled and only European style.
Correlation options have some of the same data as a plain vanilla options such as contract date, exercise date, a premium cash flow and a cash settlement flow when exercised
As this option can never be settled physically it merely contains data for calculation purposes. This data should be the same as for a basket option. The option differs from a basket option only in that they have different option types.
Use the Fix Average Rates to fix the rates for the correlation option or reset the rates using Reset Average Rate Fixing .