150 Million Options Priced in 17 Seconds
June 10, 2011
No asterisks required. But a high-performance financial computing company said it has in operation an analytics engine that can price 150 million options in 17 seconds.
Hanweck Associates of New York said its Volera trading and risk management system is capable of calculating 8 million prices a second, using graphics processors in combination with general purpose central processors.
In fact, Hanweck’s VoleraFEED of prices and risk parameters for options trading is built on the same NVIDIA graphics processors and Super Micro Computer server hardware as software toolmaker Xcelerit of Dublin, Ireland.
Xcelerit and the United Kingdom arm of Super Micro, which is based in San Jose, Calif., said Thursday their software and hardware, running together, had demonstrated record speed in a Monte Carlo simulation on European-style options using the industry’s fundamental pricing model, known as the Black-Scholes model.
The two companies said the prices of 1 million options were evaluated with 500,000 simulation paths in less than 17 seconds.
The Hanweck engine can pursue billions of paths a second, according to Gerald Hanweck, Jr., founder and CEO of Hanweck Associates. Hanweck served as JPMorgan's Chief Equity Derivatives Strategist from 2000 to 2003 and also has led the bank's U.S. Fixed-Income Derivatives Strategy team.
Hanweck said the Volera approach to calculating options prices differs in two distinct ways from that of Xcelerit.
First, Volera calculates prices on American-style options, which, he maintains, is more complex. European pricing essentially calculates a straight path from the current time to an expiration date for the options contract, he said. American-style pricing calculates prices for any time in between the present and expiration, so market participants can take into consideration whether there might be a better exit point than expiration.
Second, Volera uses different methods of calculating the prices, other than Monte Carlo simulation. Volera relies largely on a mathematical approach to pricing known as binomial trees.
In the the binomial options pricing model time is divided between the present and expiration are divided into a lattice-work of discrete time periods and a variety of conditions can be applied to that series of slices of time.
Hanweck said the Volera engine achieves prices for more than 8 million American-style options per second, using the binomial tree method, in conjunction with full interest-rate and hard-to-borrow curves and discrete dividends. That translates to calculating prices for nearly 150 million options in 17 seconds, he said.
The Hanweck system is in use at the International Securities Exchange, an all-electronic options exchange in the United States. ISE trades options on more than 2,000 underlying equity, exchange-traded funds, indices and foreign-exchange products.
ISE put VoleraFEED in place because it is “a cutting edge, Graphics Processing Unit (GPU)-based options analytics engine that is capable of calculating real-time implied volatilities and Greeks for the U.S. options industry, ’’ said Jeffrey Soule, Head of Market Data at the exchange. The feed “is uniquely capable of processing the vast amount of messaging traffic that goes out across the Options Price Reporting Authority and calculating metrics that impact the price of individual options contracts on a real time basis. ‘’