Lucic, Vladimir;
Tse, Alex;
(2025)
Option market-making and vol arbitrage. The agent’s view is factored in to a realised-vs-implied vol model.
Risk.net
pp. 1-13.
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Abstract
We introduce a market making model of options which can encompass the trader’s view on the underlying volatility versus the market implied volatility surface. An approximately optimal strategy is derived in closed form, where the optimal bid and ask levels depend on the expected volatility arbitrage profits associated with the quoted options. We demonstrate how risk control over customised factors can be incorporated within the trading algorithm, which in turn can improve the resilience of the market making strategy against unexpected movements of the implied volatility surface
| Type: | Article |
|---|---|
| Title: | Option market-making and vol arbitrage. The agent’s view is factored in to a realised-vs-implied vol model |
| Publisher version: | https://www.risk.net/cutting-edge/7961097/option-m... |
| Language: | English |
| Additional information: | This version is the author accepted manuscript. For information on re-use, please refer to the publisher's terms and conditions. |
| UCL classification: | UCL UCL > Provost and Vice Provost Offices > UCL BEAMS UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Maths and Physical Sciences UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Maths and Physical Sciences > Dept of Mathematics |
| URI: | https://discovery.ucl.ac.uk/id/eprint/10207338 |
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