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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.
 
Last edited:

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.
 
Last edited:

nelsonyhy

Member
C++ Student
I do not think it is correct. High correlation means lower dispersion within the basket.
 

nelsonyhy

Member
C++ Student
I really don't think there's any difference between ITM or OTM. Correct me if I'm wrong.
 
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