Basket option hedging method

1. A computer-implemented method for hedging a correlation risk associated with a basket option, said basket option including a plurality of securities, the method comprising:

receiving in a computer storage element information relating to a plurality of securities;

defining, in a computer storage element with an input device operatively connected to a computer processor, a basket option on the received plurality of securities, wherein said basket option is exposed to a correlation risk defined by factors comprising the volatility of individual components of the basket option and the relative weight of the respective components;

executing via the computer processor a transaction comprising conveyance of the basket option to provide a hedge against risk in a portfolio comprising the plurality of securities;

forming in the computer storage element a matching best-of option for said basket option based on a correlation factor of the basket option components, wherein said best-of option is an option on a security with the best return of a plurality of securities during a predefined period of time;

executing via the computer processor a transaction comprising conveyance of said matching best-of option to provide a hedge against the correlation risk associated with the basket option.

2. The method of claim 1 , wherein the defining a basket option on the received plurality of securities includes:

setting a strike price of the basket option based on weighted value of the individual components of the basket; and

wherein the forming a matching best-of option for the basket option includes:

forming a best-of option for all of the received plurality of securities in the basket option.

3. The method of claim 1 , wherein said hedging transaction comprising conveyance of the basket option includes selling said basket option and said hedging transaction comprising conveyance of the best-of option includes selling said best-of option.

4. The method of claim 1 , wherein said securities include foreign exchange securities.

5. The method of claim 1 , wherein said securities include equities.

6. The method of claim 1 , wherein said plurality of securities comprise commodities.

7. The method of claim 1 , wherein said plurality of securities comprise debt instruments.

8. A computer-implemented method for managing investment instruments comprising:

hedging a correlation risk associated with purchasing a basket option and defined by factors comprising volatility of individual components of the basket and relative weight of the components, said basket option including a plurality of securities, the method further comprising:

receiving in a computer storage an indication of the plurality of securities comprising the basket option;

presenting a best-of option based on a correlation factor of the basket option components to act as a hedge against the correlation risk associated with the basket option, the best-of option comprising at least two of said plurality of securities comprising the basket option, wherein said best-of option is an option on a security with the best return of the at least two of said plurality of securities during a predefined period of time;

receiving into the computer processor an indication to purchase the best-of option comprising the at least two of said plurality of securities; and

executing a transaction conveying the best-of option comprising the at least two of said plurality of securities.

9. The method of claim 8 , wherein said best-of option includes all of said plurality of securities.

10. The method of claim 8 , wherein said basket option is a basket put option and the executing a transaction conveying the best of option includes:

purchasing said basket put option.

11. The method of claim 8 , wherein said basket option is a basket call option and said executing a transaction conveying the best of option includes:

purchasing said basket call option.

12. The method of claim 8 , wherein said executing a transaction conveying the best of option includes:

purchasing said best-of option.

13. The method of claim 8 , wherein said executing a transaction conveying the best of option includes:

selling said best-of option.

14. The method of claim 8 , wherein said plurality of securities includes foreign exchange securities.

15. The method of claim 8 , wherein said plurality of securities includes equities.

16. The method of claim 8 , wherein said plurality of securities includes commodities.

17. The method of claim 8 , wherein said plurality of securities includes debt instruments.

18. The method of claim 8 , wherein the best-of option is formed by steps comprising:

calculating via the computer processor an expected value of the basket upon expiration;

calculating via the computer processor an effective basket volatility;

calculating via the computer processor an effective delta of the basket option; and

calculating via the computer processor strikes for each option included in the basket.

19. A computerized system for hedging a correlation risk associated with a basket option, said basket option including a plurality of securities, the system comprising:

a computer server comprising a processor and a memory; and

executable software stored on the memory and executable on demand, the software operative with the server to cause the system to:

receive in a computer storage element information relating to a plurality of securities;

define in a computer storage element with an input device operatively connected to a computer processor a basket option on the received plurality of securities, wherein said basket option is exposed to a correlation risk defined by factors comprising the volatility of individual components of the basket and the relative weight of the components;

execute a transaction comprising conveyance of the basket option to provide a hedge against risk in a portfolio comprising the plurality of securities;

form in the computer storage a matching best-of option for said basket option on the plurality of securities based on a correlation factor of the basket option components, wherein said best-of option is an option on a security with the best return of the plurality of securities during a predefined period of time;

execute a transaction comprising conveyance of said matching best-of option to provide a hedge against the correlation risk associated with the basket option.

20. The computerized system of claim 19 wherein the defining in a computer storage element a basket option on the plurality of securities includes:

setting a strike price of the basket option based on weighted value of the individual components of the basket; and

wherein the forming a best-of option for said basket option includes:

forming a best-of option for all of said individual components.

21. A processor-implemented method for hedging a correlation risk, comprising:

receiving in a computer storage a selection of securities exposed to financial risk;

defining a basket option on the received securities, wherein said basket option is exposed to a correlation risk, and wherein said basket option provides a hedge against risk in a portfolio comprising the received securities;

defining a correlation risk with factors comprising the volatility of individual components of the basket option and the relative weight of the respective components;

receiving an indication to purchase said basket option;

determining an effective basket volatility;

forming a matching best-of option for said basket option on the securities based on a correlation factor of the basket option components and the determined basket volatility, wherein said best-of option is an option on a security with the best return of the securities during a predefined period of time;

executing via the processor a transaction comprising conveyance of said matching best-of option to provide a hedge against the correlation risk associated with the basket option;

executing a transaction comprising conveyance of the matching basket of options.