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Derivatives are generally subject to some fairly large uncertainty in valuation, for example bid/offer spreads are usually many orders of magnitude larger than
by fancyfredbot 3y ago
Derivatives are generally subject to some fairly large uncertainty in valuation, for example bid/offer spreads are usually many orders of magnitude larger than floating point error. When the derivative expires it does have some very fixed value but the investment bank will have made enough money off the trade to "generously" round up the float to the nearest cent.
- DamonHD 3y agoProfit/margin was not larger than the ulp for single-precision float values for derivatives by the time I got there, so we all were using doubles. The rounding-for-settlement issue that you describe is, I think, separate.
- fancyfredbot 3y agoSingle precision ulp is one part in ten million? I'm not sure which derivatives you worked with but that's an exceptionally small profit margin. For most derivatives a margin of one part in ten thousand would be considered small.