Advanced Institutions Option Trading - Part 10

Option Pricing Models
Institutions rely on theoretical models to value options precisely.

Models Used:
Black-Scholes Model: Most common for European Options

Binomial Model: For American options

Monte Carlo Simulations: For complex path-dependent options

Bachelier Model: For negative rate scenarios

These models help forecast fair value, hedge ratios, and profit probabilities.

🔹 17. Algorithmic and Quant Option Trading
Institutional desks often use automation for efficiency.

Tools & Techniques:
Python, R, C++ for strategy coding

Machine Learning for volatility prediction

Option Flow Analysis (Unusual Orders)

Real-time Gamma Exposure Mapping

Quant desks track Volga, Vanna, Charm, and other second-order Greeks for precise hedging.