Consider an at-the-money call option on the maximum of two assets.As the correlation between the two assets increases,what happens to the value of this option?
A)It decreases.
B)It stays the same.
C)It increases.
D)There is not enough information to answer this question.

Question

Quizplus · Accepted Answer

When the payoff depends on the outcome of the better of two assets,the less correlated they are the better because it allows any one to be very high when the other one is very low.When both are perfectly correlated both need to be very high at the same time,and this is a lower probability event.

Consider an At-The-Money Call Option on the Maximum of Two