4
$\begingroup$

Let's take a look at market-maker's option quote in vol terms: 8.5 / 9.5. In that example bid-ask spread equals 1.0 point of vol.

Can anybody clarifying how market-maker choose amount of spread in real life? Intuitively clear that it depends on volatility. The higher volatility entails higher bid-ask spread and vice versa. Besides this marker-maker must to hedge own position (if he bought/sold option). Likely it determines bid-ask spread amount too.

Are there any quantitative approaches to define bid-ask spread? How market-mnakers do it in real life?

$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Browse other questions tagged or ask your own question.