easy · Quantitative Finance numerical
If you are pricing a multi-asset basket option, how would you generate correlated paths to use with variance reduction techniques?
- Use identical random draws for every asset in the basket to simplify.
- Use a completely separate, independent random number generator for each basket asset.
- Set the correlation coefficient ρ to zero to simplify the covariance matrix calculation.
- Apply the Cholesky decomposition to a vector of independent standard normals.
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