I find options fascinating because they deal with the abstract ideas of volatility and correlation, both of which are unobservable and can often seem like wild animal spirits (take the current stock market as an example). Understanding these subtle concepts is never easy, but it is essential in pricing some of the more exotic options which involve multiple underlying stocks. To set the scene, let’s pretend that your neighbor wants to make a bet with you where he will pay you $100 if Google (GOOG) and Apple (APPL) are above 500 and 240 respectively after 1 year, but you have to pay him $25 today. How would we determine if $25 is a good deal or not?