I would like to learn how to price options written on basket of several underlyings.
I've never tried to do it and I would appreciate if you can provide some documents, papers, web sites and so on in order I can collect materials to build my own step by step guide.
I know the first step should be Black & Scholes formula, then I found out other methods exist like Beisser, Gentle, Ju, Milevsky etc.
At the end of my studies, I would like to price basket options in R building my own index by weighted sum of several assets' prices.
Answer
Once you have slogged through all the relatively useless theoretical literature, this paper is a rediscovery (and pretty good write-up) of how basket option pricing is really done in serious quant packages at the big banks.
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