Theoretical Model Wizard

The Theoretical Model Wizard allows users to set various parameters to be used with pricing/analyzing instruments within Metro.

Setting Model Parameters

Drop down menus allow users to select pricing model, calendar and decay schedules (see Calendar Wizard for details) as well as the expiration type (AM, PM, Current).

AM/PM Expiration

AM/PM expiration allows users to define the time of day which expiration will occur.  AM expiration is at 12:00 AM of the expiration date, PM is at 11:59 PM of the expiration date.  Users can define an expiration date decay schedule to ensure that on the day of expiration options are valued appropriately.

Detailed information on Calendar and Inter-Day Decay settings can be found in the Calendar Wizard section.

Setting Skew Options

Advanced documentation on Adjusted Greeks, Point Types & Skew Dimensions is available.

Skew Type

Metro provides a number of alternatives for modeling volatility.  The models vary between simple polynomial based approaches to cubic splines and other more involved parametric models.

Point Type

Point Type allows the user to define how the manipulation of the wing portion of the volatility skew is defined. It allows the trader to set a cutoff point (wings) for their skew by either Delta, Strike Offset, Standard Deviation or Strike.  Different wing point types can be set for different products if desired.

Apply Point Type to Center

The center strike of the curve is defined according to the same strike rule chosen for the other points in the curve, ie Moneyness, Delta, etc.

Skew Dimension

Curve dimensions give the user the ability to change the evaluation space for each curve type.

Pivot Type

Pivot Type allows the trader to set their volatility skew as either Fixed (volatility associated with a strike is fixed and will not change as the underlying moves) or Float (volatility associated with the strike is dynamic and is determined by the skew settings and ATM point on the vol path).

Linking Skews

Link To

Allows users to link the skew of another product to the current product.  By changing the Primary Symbol and checking the Link Skew checkbox, the skew from the Primary Symbol will be used for the configured product.

Viewing the Linked Skew in the Model Control

Once the skew is linked between the primary and secondary/slave products, the Model Control will indicate the link by displaying a check box on the Linked indicator.  Values that are linked and therefore cannot be changed are also shaded.  Some values, such as Vol Shift can still be manipulated in the slave product(s).  Additional details can be found in the Model Control Linked Skews documentation.

Un-linking Specific Months in the Model Control

Users can un-link specific months in the slave product(s) by un-checking the Linked indicator.  This allows users to manipulate the skew for individual months for both products independently.  For example, linked options using AM vs PM expiration that are normally linked can be unlinked as expiration approaches.

Custom Linking

In order to support linked products where the secondary product may follow more than one symbol, users can link expiration months to another specific expiration month in a different symbol.  For example, SPXW have several expiration dates coinciding with both CME ES and EW expiration months.  Users can select EW months for specific months with corresponding expiration dates even though the primary symbol is ES.  Double click on the Linked To cell in the Model Control grid and select an expiration month.

All model settings should match for linked products.