Pricing Basket Put Option With Correlation Factor Using Homotopy Perturbation Method

A basket option is an option that has received attention from investors because of its ability to manage risks and gain exposure to a set of assets simultaneously. The complexity of basket options arises due to the correlation between the underlying assets. Therefore, basket options pricing and risk assessment could be more complicated than the single-asset options. This study aims to find the price of a two-assets basket option when there is a correlation between its assets and find the effect of correlation on the price of a basket put option. The explicit solution of this problem is carried out by homotopy perturbation method and apply a variable transformation in advance to eliminate the non-smooth point. The results show that the solution obtained from this approximation has high accuracy when compared with the analytical results and the correlation has a significant impact on the basket put option price.