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Derivatives pricing

Tbricks by Itiviti’s derivatives pricing app uses highly optimized code to price standard contracts, such as forwards, futures and European and American options. But it also covers exotic options such as barrier options and turbos, using state-of-the-art finite difference methods.

The horizontally scalable high-performance calculation engine allows for pricing of derivatives, using highly optimised algorithms, all done on the server side. In Tbricks the binomial option pricing algorithm and finite difference algorithms perform flawlessly even when running with hundreds of steps — thanks to the careful use of caching and other performance-enhancing techniques and algorithms — resulting in higher accuracy of the theoretical prices in real time.

For pricing of exotic instruments, or when a current company-standard pricing model is required, it is possible to extend the Tbricks pricing app directly, using the exact same API as is used internally by Tbricks — making it possible to achieve the same excellent performance as the built-in pricing models. It is also possible to extend the kind of calculated values that a given pricing app can provide, allowing for seamless extension when required. The built-in pricing models aren’t black boxes; the full source code is provided for all models.

All pricing parameters can be accessed from Lua, enabling you to create your own key values on the fly.

As an example, here’s the difference in fair price if you are using a risk context versus the trading context:

return instrument.calculate[“Fair market price”, parameter(“Parameter context ranking”, ranking.Risk)) – instrument.calculate[“Fair market price”, parameter(“Parameter context ranking”, ranking.Trading))

Highlights

  • Covers vanilla futures and options, barriers, asian tails and turbos
  • Standard greeks supported, such as delta, gamma, vega, theta, rho, vanna, vomma, volga, etc
  • Live time decay supported with configurable granularity
  • Careful handling of equity dividends using state-of-the art algorithms
  • Flexible way of setting source parameters for pricing in the user interface as well as time machine support for parameters and underlying prices, all accessible and configurable from Lua as well
  • Support for order book pricing with arbitrary volumes
  • Support for pricing on aggregated order books

Building blocks

App_derivatives_pricingparameters

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