Pricing Engine User's Manual



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Derivative Engines is an Option Pricing Calculator for Currency Options. This Option Calculator is not a simple Black Scholes Option calculator but also a complete solution for pricing currency options. The Implied ATM volatilities of the currency pairs are updated by the changing market conditions. The volatility smile is derived and the implied market volatility of the given strike price is calculated by Vanna Volga Method. We started firstly with EUR/USD and USD/TRY currency pairs. As of November 23 Derivative Engines can price also the GBP/USD, USD/JPY, USD/CHF and EUR/TRY options. The option pricing calculator presented in this web site is user friendly and ergonamic. Options can be priced automatically with changing market vols and also with user input market vols. We try to explain the fields in the option pricing engine below. Please do not hesitate to contanct us for any of your questions and suggestions. We are ready to develop this engine according to your ideas.

  • Trade Date : Trade Date is updated automatically with todays date. Trade Date can not be modified by the user.
  • Spot : Spot rate is the current traded exchange rate of the currency pair. Spot rate is not feeded autamatically by the Pricing Engine. User should type the spot rate manually. Spot format is autamatically updated by the Pricing Engine. For example if the user enters 150 for the USDTRY spot rate it is automatically corrected by the Engine as 1.5000.
  • Currency Pair : User can enter the currency pair manually in the Currency Pair textbox. The pairs are checked and corrected by the platform automatically. At this stage there six acceptable Currency Pairs defined to the system which are 'EURUSD' , 'GBPUSD' , 'USDCHF' ,'USDJPY' ,'USDTRY' , 'EURTRY'.
  • Option Type : At this stage acceptable option types in the Pricing Engine are 'Vanilla' , 'Multiple Options', 'Barrier Options'
  • CALL / PUT : Determines that if the option is a Call option or a Put option. In FX Option Market the right to buy USD for the USDTRY currency is shown as USD CALL TRY PUT. Because when you are buying USD you have to pay TRY, which means that you are selling TRY. The textboxes for CALL and PUT are readonly which means that it is not allowed to write any text inside. But when the user clicks to the textbox 'CALL' for ex. CALL and PUT relocates.
  • Strike : User should type the Strike rate manually. Strike format is autamatically updated by the Pricing Engine. For example if the user enters 150 for the USDTRY strike rate it is automatically corrected by the Engine as 1.5000.
  • Expiry : Pricing Engine is very flexible for the date format. Expiry Date of the option can be entered with the follwing formats.


    • - 30/09/09
    - 30/09/2009
    - 300909
    - 30.09.09
    - 30.09.2009

    - 30d           (for 30 days time to expiry)
    - 2w            (for 2 weeks time to maturity)
    - 1m           (for 1 month time to maturity)
    - 1y             (for 1 year time to maturity)
  • Delivery : Delivery of the option is automatically updated as Delivery date equals to Expiry date.
  • ATM Vol % : At the money volatility is updated automatically by the system according to market conditions if the Refresh Rates Option is selected as 'ON'. Otherwise Pricing Engine will not update the at the money volatility when the option Expiration period is changed. If the Refresh Rates Option is selected as 'OFF' then user should update the at the money volatiltiy manually. ATM volatility is written as percentage in the textbox. For example for %15 ATM volatility, user should enter the number 15.
  • Volatility B/A Spread %: In the market option prices are quoted as bid and ask. The parameter that makes the difference between bid and ask price is the volatility. Since the Pricing Engine gives two way quatation as bid and ask, the difference between the bid volatility and ask volatility is Volatility B/A Spread. This spread is written as percentage in the textbox. For example for %1 volatility spread, user should enter the number 1. Volatility Spread is updated automatically by the Pricing Engine according to the market conditions if the Refresh Rates Option is selected as 'ON'. Otherwise Pricing Engine will not update volatility spread when the option Expiration period is changed. If the Refresh Rates Option is selected as 'OFF' then user should update the volatility spread manually. volatility spread is written as percentage in the textbox. For example for %1 volatility spread, user should enter the number 1.
  • 25 Del BF % : The quoted price in the market for 25 Delta ButtferFly is updated automatically by the Pricing Engine conditions according to the market conditions if the Refresh Rates Option is selected as 'ON'. Otherwise Pricing Engine will not update the 25 Delta ButtferFly when the option Expiration period is changed. If the Refresh Rates Option is selected as 'OFF' then user should update the 25 Delta ButtferFly manually. 25 Delta ButtferFly is written as percentage in the textbox. For example for %1 25 Delta ButtferFly, user should enter the number 1.
  • 25 Del RR % : The quoted price in the market for 25 Delta Risk Reversal is updated automatically by the Pricing Engine according to the market conditions if the Refresh Rates Option is selected as 'ON'. Otherwise Pricing Engine will not update the 25 Delta Risk Reversal when the option Expiration period is changed. If the Refresh Rates Option is selected as 'OFF' then user should update the 25 Delta Risk Reversal manually. 25 Delta Risk Reversal is written as percentage in the textbox. For example for %1 25 Delta Risk Reversal, user should enter the number 1.
  • ... DEPO % : Interest rate of the specified currency for the expiration period. Depo rates are updated automatically by the Pricing Engine according to market conditions if the Refresh Rates Option is selected as 'ON'. Otherwise Pricing Engine will not update the Depo rates when the option Expiration period is changed. If the Refresh Rates Option is selected as 'OFF' then user should update the Depo rates manually. Depo rates are written as percentage in the textbox. For example for %1 Depo rate, user should enter the number 1.
  • Refresh Rates : If Refresh Rates are selected as 'ON' then the following parameters are updated automatically by the Pricing Engine according to market conditions.


    • - ATM Vol %
    - Volatility B/A Spread %
    - 10 Del BF
    - 10 Del RR
    - Depo

    If Refresh Rates are selected as 'OFF' then all of these fields should be entered manually by the user.