Advanced Institutions Option Trading - Part 10Option Pricing Models
Institutions rely on theoretical models to value options precisely.
Models Used:
Black-Scholes Model: Most common for European Options
Binomial Model: For American options
Monte Carlo Simulations: For complex path-dependent options
Bachelier Model: For negative rate scenarios
These models help forecast fair value, hedge ratios, and profit probabilities.
🔹 17. Algorithmic and Quant Option Trading
Institutional desks often use automation for efficiency.
Tools & Techniques:
Python, R, C++ for strategy coding
Machine Learning for volatility prediction
Option Flow Analysis (Unusual Orders)
Real-time Gamma Exposure Mapping
Quant desks track Volga, Vanna, Charm, and other second-order Greeks for precise hedging.
