CIRPÉE Centre interuniversitaire sur le risque, les politiques économiques et l’emploi Cahier de recherche/Working Paper 06-05 Heterogeneous Basket Options Pricing Using Analytical Approximations Georges Dionne Geneviève Gauthier Nadia Ouertani Nabil Tahani Février/February 2006 _______________________ Dionne: Canada Research Chair in Risk Management, HEC Montréal and CIRPÉE Gauthier: Management Science Department, HEC Montréal Ouertani: IESEG School of Management, Lille Tahani: School of Administrative Studies, York University The authors acknowledge the financial support of the Institut de Finance Mathématiques de Montréal (IFM 2 ), the National Science and Engineering Research Council of Canada (NSERC) and the Fonds Québécois de Recherche sur la Société et la Culture (FQRSC). This paper extends N. Ouertani’s Ph.D. thesis on which Phelim P. Boyle, Michel Denault, and Pascal François have made very helpful suggestions. We also thank Moshe A. Milevsky and Chris Robinson for their comments. Previous versions of this paper have been presented at the 18 th Annual Australasian Finance and Banking Conference (Sydney, December 2005) and the Northern Finance Association Meeting (Vancouver, October 2005).