Method and system for pricing financial derivatives

Abstract

A method for providing a bid price and/or an offer price of an option relating to an underlying asset, the method including the steps of receiving first input data corresponding to a plurality of parameters defining the option, receiving second input data corresponding to a plurality of current market conditions relating to the underlying value, computing a corrected theoretical value (CTV) of the option based on the first and second input data, computing a bid/offer spread of the option based on the first and input data, computing a bid price and/or an offer price of the option based on the corrected TV and the bid/offer spread, and providing an output corresponding to the bid price and/or the offer price of said option.

1 - 52 . (canceled) 
     
     
         53 . A method comprising:
 computing, by a computing device, a bid/offer spread of an option on an underlying asset based on first input data corresponding to at least one parameter defining said option and second input data corresponding to at least one current market condition relating to said underlying asset; and   providing an output based on the bid/offer spread.   
     
     
         54 . A method according to  claim 53 , wherein said first input data comprises an indication of at least one of a type of said option, an expiration date of said option, a trigger for said option, and a strike of said option. 
     
     
         55 . A method according to  claim 53 , wherein said second input data comprises an indication of at least one of a spot value, an interest rate, a volatility, an at-the-money volatility, a 25 delta risk reversal, a 25 delta butterfly, and a 25 delta strangle. 
     
     
         56 . A method according to  claim 53  comprising computing at least one of a bid price and an offer price of said option based on said bid/offer spread. 
     
     
         57 . A method according to  claim 56  comprising communicating at least one of the bid price and offer price of said option via a communication network. 
     
     
         58 . A method according to  claim 56 , wherein providing the output comprises providing an output corresponding to at least one of the bid price and the offer price of said option. 
     
     
         59 . A method according to  claim 53 , wherein computing said bid/offer spread comprises automatically computing said bid/offer spread. 
     
     
         60 . A method according to  claim 53 , wherein computing said bid/offer spread comprises computing said bid/offer spread based on a corrected-theoretical-value of said option. 
     
     
         61 . A method according to  claim 53 , wherein computing said bid/offer spread comprises:
 computing a base value for the bid/offer spread using at least part of said first and second input data; and   computing said bid/offer spread by correcting said base value using at least part of said first and second data.   
     
     
         62 . A method according to  claim 61 , wherein correcting said base value comprises:
 computing a plurality of bid/offer spread corrections based on at least part of said first and second input data; and   applying said plurality of bid/offer spread corrections to said base value.   
     
     
         63 . A method according to  claim 62  wherein at least one of said plurality of bid/offer spread corrections is a function of at least one factor related to a risk involved in said option. 
     
     
         64 . A method according to  claim 63 , wherein said plurality of bid/offer spread corrections comprise at least one of a convexity correction, a risk reversal correction, a shift correction, a gearing correction, a Vega correction, and an intrinsic value correction. 
     
     
         65 . A method according to  claim 62 , wherein applying said bid/offer spread corrections to said base value comprises:
 computing a bid/offer spread correction weight corresponding to one or more of said bid/offer spread corrections;   computing weighted bid/offer spread corrections by multiplying said one or more bid/offer spread corrections by the corresponding bid/offer spread correction weight; and   adding said weighted bid/offer spread corrections to said base value.   
     
     
         66 . A method according to  claim 65 , wherein at least one of said bid/offer spread correction weights is time dependent. 
     
     
         67 . A method according to  claim 53 , wherein said underlying asset comprises a financial asset. 
     
     
         68 . A method according to  claim 67 , wherein said option is a foreign exchange (FX) option, a Vanilla option; an option-like financial derivative, or an exotic option. 
     
     
         69 . A method according to  claim 53  comprising receiving said second input data via a communication network. 
     
     
         70 . A method according to  claim 53 , wherein said underlying asset is related to at least one of a commodity, a stock, a bond, an interest rate, and the weather. 
     
     
         71 . A system comprising:
 a server to receive first input data corresponding to at least one parameter defining an option on an underlying asset and second input data corresponding to at least one current market condition relating to said underlying asset; and   a processor, associated with said server, which computes a bid/offer spread of said option based on said first and second input data.   
     
     
         72 . A system according to  claim 71 , wherein said first data comprises an indication of at least one of a type of said option, an expiration date of said option, and a trigger for said option. 
     
     
         73 . A system according to  claim 71 , wherein said second data comprises an indication of at least one of a spot value, an interest rate, a volatility, an at the money volatility, a 25 delta risk reversal, a 25 delta butterfly, and a 25 delta strangle. 
     
     
         74 . A system according to  claim 71 , wherein said processor computes at least one of a bid price and an offer price of said option based on said bid/offer spread. 
     
     
         75 . A system according to  claim 74 , wherein said server is to provide an output corresponding to at least one of the bid price and the offer price of said option. 
     
     
         76 . A system according to  claim 74 , wherein said server is to communicate at least one of the bid price and the offer price of said option via a communication network. 
     
     
         77 . A system according to  claim 71 , wherein said underlying asset is related to at least one of a commodity, a stock, a bond, an interest rate, and the weather. 
     
     
         78 . A system according to  claim 71 , wherein said processor is to compute said bid/offer spread based on a corrected-theoretical-value of said option. 
     
     
         79 . A system according to  claim 71  wherein, in computing said bid/offer spread, said processor computes a base value for the bid/offer spread and computes said bid/offer spread by correcting said base value, based on at least part of said first and second data. 
     
     
         80 . A system according to  claim 79  wherein, in correcting said base value, said processor computes a plurality of bid/offer spread corrections and applies said plurality of bid/offer spread corrections to said base value. 
     
     
         81 . A system according to  claim 80 , wherein at least one of said bid/offer spread corrections is a function of at least one factor related to a risk associated with said option. 
     
     
         82 . A system according to  claim 81 , wherein said plurality of bid/offer spread corrections comprise at least one of a convexity correction, a risk reversal correction, a shift correction, a gearing correction, a Vega correction, and an intrinsic value correction. 
     
     
         83 . A system according to  claim 80  wherein, in applying said bid/offer spread corrections to said base value, said processor computes a plurality of bid/offer spread correction weights for said plurality of bid/offer spread corrections, multiplies said plurality of bid/offer spread corrections by said plurality of bid/offer spread correction weights to yield a corresponding weighted bid/offer spread correction, and adds said weighted bid/offer spread corrections to said base value. 
     
     
         84 . A system according to  claim 83 , wherein at least one of said bid/offer spread correction weights is time dependent. 
     
     
         85 . A system according to  claim 71 , wherein said underlying asset comprises a financial asset. 
     
     
         86 . A system according to  claim 85 , wherein said option is a foreign exchange (FX) option, a Vanilla option, an option-like financial derivative, or an exotic option. 
     
     
         87 . A system according to  claim 71 , wherein said server is to receive said second input data via a communication network. 
     
     
         88 . A machine-readable medium having stored thereon instructions, which when executed by a machine result in:
 computing a bid/offer spread of an option on an underlying asset based on first input data corresponding to at least one parameter defining said option and second input data corresponding to at least one current market condition relating to said underlying asset.   
     
     
         89 . A machine-readable medium according to  claim 88 , wherein said first input data comprises an indication of at least one of a type of said option, an expiration date of said option, a trigger for said option, and a strike of said option. 
     
     
         90 . A machine-readable medium according to  claim 88 , wherein said second input data comprises an indication of at least one of a spot value, an interest rate, a volatility, an at-the-money volatility, a 25 delta risk reversal, a 25 delta butterfly, and a 25 delta strangle. 
     
     
         91 . A machine-readable medium according to  claim 88 , wherein said instructions result in computing at least one of a bid price and an offer price of said option based on said bid/offer spread. 
     
     
         92 . A machine-readable medium according to  claim 88 , wherein the instructions resulting in computing said bid/offer spread result in automatically computing said bid/offer spread. 
     
     
         93 . A machine-readable medium according to  claim 88 , wherein the instructions resulting in computing said bid/offer spread result in computing said bid/offer spread based on a corrected-theoretical-value of said option. 
     
     
         94 . A machine-readable medium according to  claim 88 , wherein the instructions resulting in computing said bid/offer spread result in:
 computing a base value for the bid/offer spread using at least part of said first and second input data; and   computing said bid/offer spread by correcting said base value using at least part of said first and second data.