Correlation Delta of Worst of Put Digital Option

nelsonyhy

Member
C++ Student
Today I was asked by interviewer about the correlation delta of worst of put option. I said it was negative. He then asked about how would it be if it was digital. I thought it would still be negative, but he said the correlation delta of an ITM worst of digital put option would be positive. Why is it the case? Thanks.
 
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Donkeymath

New Member
Low correlation means high dispersion within the basket, making the best ‘better’ and worst ‘worser’.

It’s a WO put, then lower correlation -> higher probability the worst falls below the strike -> higher PV.

So correlation delta is negative.
 
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