I am writing an option pricing model for production use. Its not for arb or anything so it doesn't need to be 100% as accurate as possible. Just good enough for "what happens to my book if we jump 10 handles sorta thing."
I want to preface this with, I have to price most of my options same day expiry which kind of leaves out Quantlib or something of the sort unless I want to rewrite a lot of it and recompile it.
1.) I am pricing (futures options) on SPX, Nasdaq, Crude, NatGas 10year treasury note, long term treasury.
2.) What models should I be using? I realize for commodities I need to include cost of carry, but is there a model out there besides Binomial trees that I can use to price the commodities?
3.)As far as dividends, if Im pricing SPX Futures options is binomial tree the best way to do that? and do I really need to price in every discrete dividend into the BT model at the exact date and time it happens? Or will continuous/no dividend be accurate enough?
4.) Are there any additional caveats to pricing same day expiration options? - Currently I'm not sure what to divided the hours left in the day by for my time in the pricing model. I believe it would be from 6pm(open) to 4pm(settle) which is 22 hours if its under 24 hours to expiration. that would open some problems when pricing between 4-5pm say on a tuesday for wednesday expiration but that can be solved pretty easily.