TWS Greeks calculation

[Martinghoul]

When using e.g. options on the ESTX50 index quoted in EUR: Would you use negative interest rates or just use zero?

You should use the appropriate money mkt rate, regardless of whether it's positive or negative.

 

[JackRab]

@JackRab:
About the spline interpolation: Wouldn't that introduce an extra bias if on of the options you use for fitting the spline is mispriced? That would change the IV of other options..

When using e.g. options on the ESTX50 index quoted in EUR: Would you use negative interest rates or just use zero?

I use only say 5 or 6 points to create the vol curve across strikes... spline interpolation makes a smooth vol curve, which then gives me all the iv's for each strike.

There's no bias. It's just a fitting technique. You fit the curve to the market...

Interest rate wise, like @Martinghoul says, you should actually use the debit/credit interest rates you as a company or person get from your bank/broker. But that means your pricing will
probably not fit the market... so you use market conform rates.

 

[Quiet1]

@JackRab why do you bother fitting a spline? Unless you're calculating greeks by bumping or trying to trade relative value/market-make I don't see the need. Sorry if I missed answer to this elsewhere.

 

[JackRab]

@JackRab why do you bother fitting a spline? Unless you're calculating greeks by bumping or trying to trade relative value/market-make I don't see the need. Sorry if I missed answer to this elsewhere.

Because I like to have the ability to use my own pricing to make sense of certain relations between options...

I just use an excel sheet to plot vols and price options, not needed for real time... but to look for strategies and manage them. That way I have a better view of the "what-if-scenarios", especially concerning vol shifts...

 

[Quiet1]

OK fair enough.