Correlation Delta of Worst of Put Digital Option

[nelsonyhy]

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.

 

[nelsonyhy]

Any idea or actually my interview was wrong?

 

[Donkeymath]

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.

 

[nelsonyhy]

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

 

[Donkeymath]

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

Ah yes. My bad. Corrected.

 

[nelsonyhy]

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

 

[sarge]

deleted