options trading software

[options trader]

Just a long shot, but I have noticed very informed financial people on this site. Long story short is that I am looking for a vanilla american option pricing/management model. Nobody in Singapore seems to have one and the US guys want a fair chunk for their's. Given the whole picture changing when electronic trading begins ie. interfaces making sheets obsolete, I thought maybe there might something out there. Thanks very much.

[callspread]

Try these links.  Not sure if you want the model to give you live theoreticals or what, but you should be able to find something here.  Also, lots of financial data providers will give you one if you buy their service, eg Microhedge.
http://www.freeoptionpricing.com/OtherFree.htm
http://www.numa.com/software/index.htm

[This message has been edited by callspread (edited 31-05-2001).]

[arbitrageur]

I personally don't recommend you to just jump in and use models. I personally can easilty construct a palin excel spreadsheet which prices "vanilas". BUT are you aware that the pricing is based on assumption for "flat volatility" which in fact is the product the traders "trade" (ie vol changes) and hence the value of your options.
Since there are no models to value the volatility (historical and traded usualy difer), if you are not aware what tbhat it, don't trade.

[options trader]

Thanks for the reply guys.

Callspread

The web sites that you mention I have looked at, the free models are too imprecise. My guess is lack of iterations ie. one step calculations. The fee paying packages still require an inordinate amount of money in a fastly changing environment.

Arbitrageur

Looking for an integrated model to both price and dynamically manage positions, hence I have not plugged the formula into my PC. There are various concerns regarding the constant assumptions of BSM and it's offshoots ie. interest rate etc... Try pricing euroyen options with present rates Japan, you'll have some fun! Thanks for the tip man. If you know any good quants!!???

[local]

I don't think what you have in mind is going to work. If you are trading in Sg, the realtively illiquid mkt will always give rise to problems of lumpiness and gaps. If your model has very delicate requirements, you will almost certainly not be able to implement it under actual trading conditions. The basic BS is therefore good enough as in most cases all you really need  is an approximate indication of what things should be theoratically. From there, you then make money by reading and scalping the market by looking at who is doing what.    

[arbitrageur]

I used to be a good quant. Currently I'm a good mother of a toddler. And my models always got the right result - with the same assumptions as the comparative price...
My models are in London.
But for the euro-yen option (what kind, BTW)
I can only guess you have fun with the so called "volatility smile" approaching the zeros?

[arbitrageur]

Local,
The first part of your argument sounds OK. Models are not a guarantee for making money, especially in illiquid market.
The second argument "you can make money by" is prety dangerous (Are you in the business?). Let me add "make or lose money by". I hope everybody on this thread is clear that in most cases like that a non-aware person can also lose his savings in a day. The narrow definition of "arbitrage" is "make money with no risk". What you explain would qualify as " outright trading ". Since everybody would do what you say, the illiquid market would move against you. Unless you have really good, really quick info and action, no way you can make money this way. Correct?
If, let's say in late December, I decided to short SGD on the three month forward, it's not only good to guess that the market would be 1.80-sh in March. If the market participants tought of it before me, the forward would've moved already to that level. And even if I shorted at 1.78, let's say, if in January the March forward went to 1.74, my bosses, or my overdraft supplier, might've asked me to close the position to cover losses. This is just an example, I have no access to yield curves and forward points.
A week ago several big corporations with prety qualified treasurers lost billions of USD on derivatives trading. Part of it, they said, was "hedging operations". I guess they miscalculated the exposure... using BS approximatelly I can guess. And several investment banks made several hundred million USD, tooo...
Don't want to dicourage anybody. Play as you like it, just responsibly.
If you really want to do something in that area, and you are not a real professional, do your homework with Hull's "Derivatives" (engineer shoud manage), build your own models (or try to find meaningful ones - makes you aware what's going on), get yield curves, etc., get other live data from a good source. Still, there's no guarantee for making money. Limit you downside to what you can swallow, and cover losses quick.

[cs]

arbitrageur

Maybe you can take a clue from my handle.  You are looking at things from an ivory tower. I am looking at things from the pit. From my personal expereince, models have never worked particularly well. No offence but today's hotshot quant usually becomes yesterday's news all too quickly. The people I know who have been in the business longest and made the most money are those who can read who's buying and who's selling. Figure that out and you don't need any model.  

[local]

Ooops. Used my other handle which I normally use to post on this board.

[opts trader]

local.....  what are you going to do when simex goes electronic and you cant frontrun orders anymore?

calculations you use for pricing an option and the greeks are far less important than having a robust modelling process for vol which at the end of the day is going to be more art than science anyway.  get your vol assumptions wrong and prepare to be carted even if the model you uses is a fancy nine factor zillion iteration beast.  seems like a lot of the comments here refer to using options as a speculative tool rather than a hedging tool.  if anyone wants to speculate using options i'm happy to make you a price, might be able to retire a little earlier on all my excess gamma!

[options trader]

Arbitrageur

You are correct when you observe the interesting days of pricing volatility smiles when euroyen is trading at 99.92 in the prompt contract in line with cash.

Everybody else

To argue whether a model is important or not would take more time than we have to spare, ditto electronic trading, worthiness of quantative analysis etc.... Still need a vanilla options risk management system.

P.S Arbitrageur-is there a way to get in touch. Lost my access to quants when I left U.S major in London. Never traded equity derives, so I have some questions.

[opts trader]

try this site
http://www.hoadley.net/options/options.htm

i cant vouch for the quality of the math behind it but i have found it useful to illustrate different models to customers.  if you want to price american options it has a cox ross rubinstein model with up to 150 steps. depending on what you are pricing you could just knock up a black scholes model on excel and as long as your pricing up non interest bearing commodoties that dont stray too far into the money or are not long dated the european option results from that will be close enough to a binomial model. at the end of the day your forward vol curve is going to have a bigger impact than our choice of model.

[opts trader]

Re those reported losses last week by GE and etc and the gains by IBM and some inv banks, they actually are reports required by a new accounting rule FAS133 in the US.  Corporates have to report their derivitives positions each quarter, but only have to include the gains/losses as income if their is no offsetting risk on their balaance sheets.  All of the major announcements claim a risk offset against those positions so the expectation is tha the gains and losses will net out over the life of the contracts.  All the companies (that reported a negative mark  to market) clainmed the net position would be neutral and that they dont use derivsa as speculative tools, only as hedges.  Most of it anyway is swap and fx swap risk so it makes sense for a multinational.

[arbitrageur]

Well, we read about it, too. Just the math of the losses was a little higher than just hedging - as far as  I remember the corp'''s also decreased a little the expected profit (with hundreds of mil U$). I don't argue it's hedging, just say the calculations can never be precise, hence higher losses.
Re: selling options (tight vol spread)to "clients" and staying gamma long. Could you (the writer) brush up your theory? If you are a trader, selling options to clients A)if you do just delta hedge you are gamma short; B) you can get gamma long by hedging eg with other options, but then you have to buy them from somebody; C) you can do delta and gama hedge by using two assets. Correct? I have no textbooks in Sg and my last encounter with options was in September'99 - my marriage.
Well, options trader, who tries to do equity derivatives, I'm prety clear about my knowledge (not quant in the way I would define it) and qualifications (also "major US"). If you want a little chat, my email is
aniangela@excite.com
This might be incentive for me to do some refresher - for example by going to all the pages you mention.

[arbitrageur]

Little brainteaser.
In the spirit of "ivory tower".
In the memory of a nonexistent "major US".
You have 9 egs, one is either lighter, or heavier than the rest. You have scales (the sew-saw ones), but no weights.
With three measurements find the differing egg.
Have fun.