Pricing formulas.

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Hi,

Does anyone know how IG Index sets it's binary prices? I guess they have to take into account how "deep in the money" the bets are, time to expiration, the volatility of the underlying market and the net exposure of the bets. Does anyone have a more concrete mathematical formula? I read the discussion between Robertral and Stevespray, have you drawn to any more concrete conclusions since?

Any help would be much appreciated
 
I gues the joker in the pack is much of what you have detailed above. Robertral has been very helpful and I would like to thank him for his contribution. I have been modelling a variety of methods and all throw out different results depending (obvioulsy) upon you initial parameters. I think my general concluesion from all this is that the market tends to display and long head or tail during sharp market moves. These tend to settle the price back quickly once the sharp moves are over. A great trade if (a) you can catch it (b) you have the balls to do it.
 
Scripophilist said:
I gues the joker in the pack is much of what you have detailed above. Robertral has been very helpful and I would like to thank him for his contribution. I have been modelling a variety of methods and all throw out different results depending (obvioulsy) upon you initial parameters. I think my general concluesion from all this is that the market tends to display and long head or tail during sharp market moves. These tend to settle the price back quickly once the sharp moves are over. A great trade if (a) you can catch it (b) you have the balls to do it.

You forgot to mention
if
(c) IG don't refuse it :)
 
michaeltheswede said:
Hi,

Does anyone know how IG Index sets it's binary prices? I guess they have to take into account how "deep in the money" the bets are, time to expiration, the volatility of the underlying market and the net exposure of the bets. Does anyone have a more concrete mathematical formula? I read the discussion between Robertral and Stevespray, have you drawn to any more concrete conclusions since?

Any help would be much appreciated

The pricing is simple and has been mentioned in other threads.
What mathematical forumal do you want other than a binary price (I know for a fact that IG use a flat vol, so standard bin maths apply)?????
they will skew their vol depending on their directional prediction and customer flow.

Any thing else I can help with?
 
I've laborated a bit with your (Robertral) formula, but I can't seem to get any credible results. I'm sure I've missed something really fundamental, but I don't know what (I've taken courses in option pricing theory, but I'm totally new to binary betting, so that could be a reason...;)). I would be truly grateful if you could help me out.

Firstly I wonder what do you mean with Bin Up and Bin Down? Say you're betting on FTSE to finish Up, is Bin Up the buying price and Bin Down the selling price (pretty embarassing to ask...)? As you mentioned in your thread, and as would be required if the answer to the question is positive, the relation Bin Down = 1-Bin Up must hold approximately. Differences occur when the betting house has a net exposure and want to adjust the way their customers place the bets. Even as a very rough proxy this relationship never holds at Binarybet.com. They offer you a spread of approx. 5 points between the buy and sell price, which is pretty far from Bin Down = 1-Bin Up when the market is much in or out of the money.

As you see I've must have missed some really elementary stuff, but I would be really glad if you could pinpoint what that could be.
 
michaeltheswede said:
I've laborated a bit with your (Robertral) formula, but I can't seem to get any credible results. I'm sure I've missed something really fundamental, but I don't know what (I've taken courses in option pricing theory, but I'm totally new to binary betting, so that could be a reason...;)). I would be truly grateful if you could help me out.

Firstly I wonder what do you mean with Bin Up and Bin Down? Say you're betting on FTSE to finish Up, is Bin Up the buying price and Bin Down the selling price (pretty embarassing to ask...)? As you mentioned in your thread, and as would be required if the answer to the question is positive, the relation Bin Down = 1-Bin Up must hold approximately. Differences occur when the betting house has a net exposure and want to adjust the way their customers place the bets. Even as a very rough proxy this relationship never holds at Binarybet.com. They offer you a spread of approx. 5 points between the buy and sell price, which is pretty far from Bin Down = 1-Bin Up when the market is much in or out of the money.

As you see I've must have missed some really elementary stuff, but I would be really glad if you could pinpoint what that could be.

Bin up = 100*N(d2)

where d2 = [ln(S/K) - 0.5*(vol^2)*tau] / (vol*sqrt(tau))

easy

to check, try extreme values of S to make sure that Buin up tends to 100 or 0
try a vol of about 12%

any help????
 
Robertral said:
Bin up = 100*N(d2)

where d2 = [ln(S/K) - 0.5*(vol^2)*tau] / (vol*sqrt(tau))

easy

to check, try extreme values of S to make sure that Buin up tends to 100 or 0
try a vol of about 12%

any help????

Actually no,

Is Bin Up = Buy FTSE (or any other asset) if the product is called "FTSE to finish Up"? Is Bin Down = Sell FTSE if the product is called "FTSE to finish Up"?

The reason I'm asking is that if this is true then Bin Down should equal 1-Bin Up. This seems not to be the case at binarybet.com, especially not when S reaches extreme values. Instead. there is an approx. 5 point difference between the buy and sell qoute.

This can't only depend on the net exposure, it would be absurd.
 
michaeltheswede said:
Actually no,

Is Bin Up = Buy FTSE (or any other asset) if the product is called "FTSE to finish Up"? Is Bin Down = Sell FTSE if the product is called "FTSE to finish Up"?

The reason I'm asking is that if this is true then Bin Down should equal 1-Bin Up. This seems not to be the case at binarybet.com, especially not when S reaches extreme values. Instead. there is an approx. 5 point difference between the buy and sell qoute.

This can't only depend on the net exposure, it would be absurd.

Yes, that difference is called spread!!!!!!!

Look, Bin Down = 1 - Bin Up....this is a mid point.....

work out the mid point from the prices i.e (bid+ask) / 2 and then compare.........
 
Hi

Been following the formula stuff and have it in Excel. I can't get any good looking values out of it. Any chance of an example with the values for the parameters you have used for say a daily up/down on the FTSE or Dow?

Thanks
 
Hi all, bit of a belated response to this one. A few months ago an article appeared on the net regarding binarybet.com. It was stated in the article that the original pricing was based on monte carlo modelling, but the company were having difficulty with it. So apart from the obvious underlying market
+ time to expiry the last element was basically how you and I are betting, how much on buy versus sell. Pretty much makes sense, they're out to make money too ! :)

"Opportunity, is what you miss while busy trying to make things happen"
 
dippy46 said:
Hi all, bit of a belated response to this one. A few months ago an article appeared on the net regarding binarybet.com. It was stated in the article that the original pricing was based on monte carlo modelling, but the company were having difficulty with it. So apart from the obvious underlying market
+ time to expiry the last element was basically how you and I are betting, how much on buy versus sell. Pretty much makes sense, they're out to make money too ! :)

"Opportunity, is what you miss while busy trying to make things happen"

There are many different ways a MM could skew the price automatically depending on customer flow, but using an MC method just seems the easy (and very slow) way of computing a skew price.....There product developer needs to reveluate his fin maths modelling skills!!!!!!
 
When binaries first started I created a pricing sheet so that I could see where the mm's had their volatility set. I then used to look at the 30-minute realised vol of the FTSE Future and try and see how they would adjust their prices.
However, at end of day I decided this was all a bit of a waste of time. If I had a view I would trade at whatever implied vol their model was showing.
I havn't opened my pricing sheet for around 6-months now, yet I'm dealing about 10 times a day on binaries.
When you trade these things a lot, you get to know instinctively what the price should be and therefore what implieds the mm's are using - but if you want to trade, you've got to hit their price, theres no use thinking their price of 52-60 should be 48-56 if you want to buy, just buy it !
 
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