TWS Greeks calculation

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nemo4242

I am trying to figure out how Greeks and implied volatility are calculated in Interactive Brokers TWS software. I am trying to match it with my own calculations using the Black Scholes formulas.
Maybe somebody already figured that out and can help me here.

What interest rate is used for the riskless rate? I would assume the "Fed Funds Effective (Overnight Rate)", currently 0.41% published as benchmark rate on the IB web site.
Are negative rates used e.g. for EUR, e.g. EONIA (Euro Overnight Index Average) = -0.351% currently?

What is used for determing the days to expiration expressed as a fraction of a year?
Either calendar days to expiration / 365 or trading days / 252.
Are fractional days used?

What is used for the option price? I would assume the mid price (bid + ask) / 2.

Are dividends accounted for?
 
The plan and simple answer is they will never be exactly the same because they use a different model, different interest rate for each month and different dividend flows and you can use the bid ask average but they use their values.
 
I agree with Martinghoul.
The derivations are numerous. You are not seeking the "correct answer", but their specific derivation. It also seems each provider's derivation is unique.
Regarding interest rates:
I had been using the FED rates for my calculations, and recently switched to LIBOR rates, which seem to more accurately reflect pricing in SPX options (but still slightly off).
 
nemo4242 said:
thank you for your input.
what do you use regarding the time to expiration? calendar days or trading days?
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Agree with Bob for shorter durations.
Most of my current option trades are closed by 15 DTE (starting 70-80DTE), so I am currently using integer values, but plan to migrate to fractional values as I improve my accuracy in other areas as the effort is justified. I have been using Calendar days! (trading days may make sense, but then you will need to track two "days" values to properly handle interest and dividend impact, which should be based on calendar days in my opinion --I have not thought thru this; others here probably have better insight!)
 
They will probably use calendar days. If you use business days you get different IV's. You can still use it, but it's less straight forward. Fractional days to account for correct time decay during the day.

Not midpoints everywhere, because then you're synthetics probably won't match. They will fit the ATM, and 3 OTM puts and 3 OTM calls, then use a vol curve with something like spline interpolation.

Dividend will be accounted for, you can look up what they use in the div schedule on every stock.
 
FWIW, VIX is calculated using minutes out of the year. It probably doesn't hurt to add the extra precision. It probably is actually necessary on expiration day.
 
@JackRab: That's what I read elsewhere: If you use trading days your IV will be annualized by 252 and if using calendar days IV will be annualized by 365.

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?
 
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