Negative oil options
- Thread starter ZBZB
- Start date
"the clearing house will switch its options pricing and valuation model for certain crude and energy products (i.e., oil) to Bachelier"
Yeah, like the pros ever actually used the BSM in the first place.
"Why We Have Never Used the Black-Scholes-Merton Option Pricing Formula"
Espen Gaarder Haug & Nassim Nicholas Taleb
http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.581.884&rep=rep1&type=pdf
MMs are having trouble modeling these negative strikes. For many of them there are only low ball bids, and a few egregiously high offers. Switching from a lognormal to now normal distribution model is a big game changer for everyone. Everyone's hedge ratio has been completely altered as the WTI Jun20 (0) strike put's delta goes from close to zero to, to somewhere between 10 and 15.
When the front month dips below zero you have to trade WTI options like an F/X pair or options on a listed spread (e.g WTI-Brent, Soybean calendar spread options CSOs) which theoretically have unlimted upside and downside moves in the underlying. Traders and market makers are having trouble adjusting to this concept.
When the front month dips below zero you have to trade WTI options like an F/X pair or options on a listed spread (e.g WTI-Brent, Soybean calendar spread options CSOs) which theoretically have unlimted upside and downside moves in the underlying. Traders and market makers are having trouble adjusting to this concept.