Method and apparatus for improved electronic trading

• US 8,744,952 B2
• Filed: 10/03/2008
• Issued: 06/03/2014
• Est. Priority Date: 10/05/2007
• Status: Expired due to Fees

• Current Assignee: Virtu ITG Software Solutions LLC
• Original Assignee: ITG Software Solutions, Inc. (Virtu Financial, Inc.)
• Inventors: Mortimer, David Walter, Larison, Scott Charles
• Primary Examiner(s): Ebersman, Bruce I
• Application Number:
  US12/285,394
• Publication Number:
  US 20090094151A1
• Time in Patent Office: 2,069 Days
• US Class Current: 705/37
• CPC Class Codes: G06Q 30/0283 Price estimation or determination
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange

Abstract

A method and apparatus for outputting data that represents the change in value of an options premium that would have resulted if the options traded in a direct linear volume relationship with its underlying security is provided. Input values utilized include a delta value, a gamma value, a value-weighted average price of an underlying stock, a reference price of the underlying stock, and an original order premium value.

Claims

1. A non-transitory computer-readable storage medium having instructions which, when executed on a processor, perform a method for generating a benchmark price for an option order, the method comprising:

receiving a first delta value, a gamma value, a volume-weighted average price value of an underlying stock of the option, a reference price value of the underlying stock, and an original order premium value;

where the first delta value is a measure of rate of change in the value of the option for a one-unit change in the price of the underlying stock;

the gamma value is a measure of rate of change in the first delta value for a one-unit change in the price of the underlying stock;

the reference price value of the underlying stock is a recent price of the underlying stock of the option; and

the original order premium value is set for an order interval;

calculating a rate of change value based on the volume-weighted average price and reference price values;

calculating an adjusted delta value by multiplying the rate of change value by the gamma value, and adding the first delta value;

calculating a gamma-weighted average price value by multiplying the first delta value by the rate of change value to achieve a first product, squaring the rate of change value and multiplying the squared rate of change value by the gamma value to achieve a second product, and adding the first product and ½

of the second product to the original order premium value;

calculating a benchmark price for the option order based on the gamma-weighted average price value; and

outputting the benchmark price for the option order;

wherein the gamma-weighted average price value is calculated by multiplying the first delta value by the rate of change value to achieve a first product, squaring the rate of change value and multiplying the squared rate of change value by the gamma value to achieve a second product, and adding the first product and ½

of the second product to the original order premium value.

2. The non-transitory computer-readable storage medium according to claim 1, wherein the rate of change value is calculated by subtracting the reference price value from the volume-weighted average price value.

3. The non-transitory computer-readable storage medium according to claim 1, wherein the adjusted delta value is calculated by multiplying the rate of change value by the gamma value, and adding the first delta value.

4. The non-transitory computer-readable storage medium according to claim 1, wherein the gamma-weighted average price value is calculated by multiplying the rate of change value by the adjusted delta value, and adding the original order premium value.

5. The non-transitory computer readable storage medium of claim 1, wherein said original order premium value is a price originally paid for the option.

6. The non-transitory computer readable storage medium of claim 1, wherein said original order premium value is a most recently reported price for the option.

7. The non-transitory computer readable storage medium of claim 1, wherein said original order premium value is a price based on a bid-offer spread.

8. The non-transitory computer-readable storage medium according to claim 1, wherein the gamma-weighted average price value is calculated by multiplying the rate of change value by the adjusted delta value to obtain a product value, and subtracting the product value from the original order premium value.

9. An apparatus for generating a benchmark trading price for an option-order, comprising:

an input module for receiving electronically input values for said option from an options exchange via a network, the input values comprising a first delta value, a gamma value, a volume-weighted average price value of an underlying stock of the option, a reference price value of the underlying stock, and an original order premium value;

where the first delta value is a measure of rate of change in the value of the option for a one-unit change in the price of the underlying stock;

the gamma value is a measure of rate of change in the first delta value for a one-unit change in the price of the underlying stock;

the reference price value of the underlying stock is a recent price of the underlying stock of the option; and

the original order premium value is set for an order interval;

a processor connected to the input module for;

calculating a rate of change value based on the volume-weighted average price and the reference price values;

calculating an adjusted delta value by multiplying the rate of change value by the gamma value, and adding the first delta value; and

calculating a gamma-weighted average price value by multiplying the first delta value by the rate of change value to achieve a first product, squaring the rate of change value and multiplying the squared rate of change value by the gamma value to achieve a second product, an adding the first product and ½

of the second product to the original order premium value;

calculating a benchmark trading price for the option order based on said gamma-weighted average price value; and

an output module connected to the processor for outputting said benchmark trading price for the option order;

wherein the gamma-weighted average price value is calculated by multiplying the first delta value by the rate of change value to achieve a first product, squaring the rate of change value and multiplying the squared rate of change value by the gamma value to achieve a second product, an adding the first product and ½

of the second product to the original order premium value.

10. The apparatus according to claim 9, wherein the rate of change value is calculated by subtracting the reference price value from the value-weighted average price value.

11. The apparatus according to claim 9, wherein the adjusted delta value is calculated by multiplying the rate of change value by the gamma value, and adding the first delta value.

12. The apparatus according to claim 9, wherein the gamma-weighted average price value is calculated by multiplying the rate of change value by the adjusted delta value, and adding the original order premium value.

13. The apparatus of claim 9, wherein the original order premium value is a price originally paid for the option.

14. The apparatus of claim 9, wherein the original order premium value is a most recently reported price for the option.

15. The apparatus of claim 9, wherein the original order premium value is a price based on a bid-offer spread.

16. The apparatus of claim 9, wherein the gamma-weighted average price value is calculated by multiplying the rate of change value by the adjusted delta value to obtain a product value, and subtracting the product value from the original order premium value.