Patent ID: 8036969

Claim:
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.