MM (Market Maker) Hedge

The Market Makers are the providers of Liquidity on the markets. They must participate in every transaction where buyer or seller agrees to take a deal at a quoted price. The main and most common instrument to hedge the risk is to make the delta-neutral position. However, our algorithm offers a more sophisticated and effective way to hedge positions based not only on Delta, but neutralizing Gamma and Vega as well.

Composite:

1. Block for estimating value and parameters of options (The Black-Sholes option pricing model).
2. Block for estimating portfolio parameters (Delta, Gamma, Vega).
3. Optimization block for determining the hedging plan:
   1. First step – Delta Hedging with underlying asset or futures.
   2. Second step – Neutralization of Gamma and Vega at the same time (additional option positions).
   3. Final step – one more delta alignment (additional position in underlying asset).
4. Trading strategy block for each execution step.
5. Bid-ask spread quotation block – placing orders automation process, taking into account agreed limits and other necessary risk management parameters