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I have an issue about rounding price to tick size. Suppose there is price tick table below. what is tick size for price 1001, 1002 ... 1004? In other words, how to handle the price in between upper range of first level and the lower range of next level?

range tick
0 - 50 1
51 - 1000 5
1005 - 1000000 10

EDIT: The tick table is created by myself which is based on the exchange spec.

50 or less: 1
Over 50 up to 1,000: 5
Over 1,000: 10
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Hmm, I've never seen a product have an empty range like that. Can you say which product this is? – chrisaycock Dec 18 '12 at 3:28
it is index option – Michael D Dec 18 '12 at 3:47
up vote 1 down vote accepted

That exchange spec implies that there isn't a legal price of 1001, 1002, ..., 1009. The next available price after 1000 is just 1010.

If your pricing engine determines a fair value of, say, 1005, then your application will need to apply some rounding logic. For example, you can always round away from the inside price, or you can simply round to the nearest tick in either direction.

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simple solution, though you may want to be careful of safeguarding against too frequent quote changes at the rounding "edge". It may become costly depending on what type of market participant the OP is. – Matt Wolf Dec 18 '12 at 5:36

As long as you adhere to the exchange specs you will be good. But keep in mind that while the rounded price is good to place your quotes in the market, its vital you use the information of how far away your valuation price is from the rounded/quoted price. This is why you see most quoting engines, especially in the listed options market, flip back and forth between two price levels at one frequency, and another at other times. They do it as a function of how far away their valuation price is from the rounded price and especially as a function of other order book intrinsics, such as volumes posted, trades done by others.... What I am trying to say is that one rounding logic is just that, there are different ways to determine your quoted price you shoot into the market. Keep in mind that you most likely will be subject to certain modify/cancel charges, different tiers apply for different types of market participants and also how often you modify/cancel. So, rounding is one thing, whether you strictly consider the rounded price as the price you want to quote an entirely different, your valuation model and rounding algorithm may change the rounded price a multiple of times in a very short period of time when there are new information coming in at high frequency.

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