tanpatil/market-maker-options

Virtual Options Market Maker

This is an exercise in:

• Design paradigms in C++
• Interprocess communication (IPC) on a Unix system
• Thread-safe programming
• Electronic market making techniques
• Binomial options pricing

This electronic options market maker makes a market around several options contracts at various strike prices derived from historical financial data. At each timestep granularity (1s), it provides two-sided quotes for each contract depending on the movement of the underlying stock. Quotes are provided through spread-setting and the Cox-Ross-Rubinstein options pricing model for American options via dynamic programming (binomial lattice).

For simplicity, we make a few assumptions:

• Annualized volatility of the security is fixed
• Risk-free interest rate is fixed
• The market making simulation runs over a single arbitrarily chosen day from open to close
• The simulated market data is tweaked to be more volatile in the short-term to allow for more apparent results
• No new contracts can be introduced in the middle of the simulation
• All contracts share the same expiry date
• All contracts are options for the same underlying security

PnL and unrealized PnL are calculated at each timestep.

Tutorial coming soon.