Device, method and system of pricing financial instruments

Abstract

Some demonstrative embodiments include methods, devices and systems of pricing financial instruments. In one embodiment, a pricing module may be configured to receive first input data corresponding to at least one parameter defining a first option on an underlying asset and second input data corresponding to at least one current market condition relating to said underlying asset, and, based on said first and second input data, to determine a price of the first option according to a volatility smile satisfying a first criterion relating to a sum of a first correction corresponding to the first option and a second correction corresponding to a second option representing a position opposite to a position of a the first option and having substantially a same absolute delta value as the first option, wherein the first correction relates to a difference between a theoretical price of the first option and the price of the first option according to the volatility smile, and wherein the second correction relates to a difference between a theoretical price of the second option and the price of the second option according to the volatility smile. Other embodiments are described and claimed.

What is claimed is: 
     
         1 . A system of pricing options, the system comprising:
 a computing device configured to:
 receive first input data corresponding to at least one parameter defining a first option on an underlying asset; 
 receive second input data corresponding to at least one current market condition relating to said underlying asset; and 
 determine, based on said first and second input data, a price of the first option according to a pricing model, 
   wherein the price of the first option according to the pricing model satisfies a first criterion and a second criterion, the first criterion relates to a sum of a first correction corresponding to the first option and a second correction corresponding to a second option, the second criterion relates to a difference between the first correction corresponding to the first option and the second correction corresponding to the second option,   wherein the second option represents a position opposite to a position of the first option and has a same absolute delta value as the first option,   wherein the first correction relates to a difference between the price of the first option according to the pricing model and a price of the first option according to a Black-Scholes model with an At-The-Money (ATM) volatility,   and wherein the second correction relates to a difference between the price of the second option according to the pricing model and a price of the second option according to the Black-Scholes model with the ATM volatility.