8 ms·

Can you answer this question then? It is about mysterious implied volatility changes in options contracts that correspond with no matched orders. http://quant.

• lordnacho 10y ago
  The first answer is correct. You have a vol surface, and adjacent contracts are similar, so you can take the information from other contracts to re-mark your book, giving you the prices of things that haven't traded. If BMWs go up in price, Audis can go up in price as well, even though you've only observed people buying BMWs. Same goes with the general market, if people are buying Toyotas and Fords, you can guess the prices of Mercs are higher too, despite not having seen one. One thing to note is there are sometimes shenanigans going on in the options markets. The settlement prices of options determine the margining and sometimes the end-of-month PnL reported by the administrator. If a trader has a large position in an option, he might be able to cause the guy at the exchange to move the marks a little in his favour. I've sat next to guys who've phoned the exchange and hounded them to move the mark a little. No brown envelopes and such, and the relationship is not like with a broker whom you've met.