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Joined: January 22nd, 2021, 7:21 pm

Options trading models used in practice

January 22nd, 2021, 10:29 pm

Hello guys , i have a question regarding the options trading industry . What are the models and the parameters (Greeks, Var etc ) you use in practice for the management of a option portfolio ? And do you use the same methods for the management of a structured product? I was wondering if anyone in the industry use stochastic vol or jump diffusion model to manage their options portfolio . 

Thanks In Advance ! 
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Joined: July 14th, 2002, 3:00 am

Re: Options trading models used in practice

January 30th, 2021, 11:24 pm

Almost everyone in the industry who is not a price taker will use some kind of stochastic volatility model. As for limit structures, the most useful ones are limits on the Greeks, but due to regulatory fixation with VaR, that kind of limit has become fairly binding. Other useful limits are on strike and maturity concentrations, and of course counterparty concentrations given that counterparties no longer trust each other. And yes, structured products tend to be priced and managed by rigorously decomposing and pricing the relevant parts.