Rainbow options construction and evaluation based on big data analysis of stock indexes

Abstract

Contemporarily, the status and practicability of rainbow options are becoming important with the development of finance in the global market. To hedge the risk of investing in one underlying asset, investors obtain more stable profit through buying rainbow options. This paper selects two underlying assets-SSE50 Index and CNT index to evaluate the features of rainbow options based on Mento Carlo Simulation. According to the analysis, investors can hedge marketing risks and earn profits significantly through rainbow options. These results shed light on applying the rainbow option in the Chinese market.