Pricing multi-asset trades – part two

In his second article about pricing multi-asset structured products, Tim Mortimer of Future Value Consultants looks at the correlation sensitivity of worst-of autocallables and reverse convertibles

Tim Mortimer, Future Value Consultants

Last month's discussion of multi-asset trades noted that the two most common product types to use multiple assets as underlyings are worst-of autocallables and reverse convertibles, making them sensitive to correlation. Despite the significant differences between the two products, in both cases investors are 'long' correlation and will benefit from the correlation between the assets in the underlying basket turning out to be higher than is expected or priced in. The issuing bank is therefore