How to price a basket option where we can sell stock 1 at S1 or Stock 2 at S2 but not both at expiry? The time to expire is 2 months. The risk free rate, volatilities and drifts have been given so is the stock co-relation. Which method would be the best to solve?
Binomial pricing or Monte carlo method?
Binomial method seems a bit tedious.
I am not sure how to implement this in monte carlo method using programming.
I know that monte carlo uses random numbers to find the average of all the outputs.
I would appreciate if anyone could at least guide me through the process and tell me at least which formula to use? Or at least something like an algorithm to solve this problem.
I know that the value of the option would be something like the maximum value of both the stocks but I am not completely clear how to proceed.