In the option market, the option settlement price is the basis for calculating the trading margin of the option seller and determining the option price limit range. Different from futures contracts, the exchange does not calculate the profit and loss on a daily basis based on the settlement price of options, and the profit and loss of options trading is reflected in the form of royalties.
Practice of international communication
The calculation methods of CME, OCC, Australian Exchange and other exchanges are basically the same:
The first step: during the trading period, intercept several time points, select the option price and futures price of the contracts at that time, and deduce the implied volatility of these contracts. Among them, some representative contracts with exercise price are selected as seed contracts, and the implied volatility of seed contracts is guaranteed after repeated sampling.
Step 2: According to the implied volatility of the seed contract, draw the implied volatility curves of all exercise option contracts by interpolation.
Step 3: Substitute the settlement price of futures contracts into the theoretical formula, and calculate the theoretical price of all option contracts as the settlement price of these option contracts on the same day.
This method implies the following assumptions: first, the settlement price of the underlying futures contract on that day is fair; Second, the implied volatility reflected by the real exchange of options is representative of the market.
This method does not depend on the trading volume, whether the options are active before closing, or whether the implied volatility shows the trend of "volatility smile". According to this method, the logical consistency of the price comparison relationship between the option contract itself and the contract can be guaranteed.
Design description of option settlement price of Dashang Institute
As for the settlement price of option contracts, it is stipulated by Dashang that the theoretical price of each option contract is determined according to the implied volatility except the last trading day as the settlement price of the day. When the option price is obviously unreasonable, the exchange can adjust the settlement price of the option contract. From my design scheme, I mainly refer to the practice of using theoretical pricing model in mature exchanges in Europe and America, starting with the implied volatility of option contracts, taking the no-arbitrage principle as the design starting point, and taking the theoretical price calculated by option pricing model as the settlement price.