System and Method for Trading Options

Abstract

A system and method for interactive trading of option contracts is described. Users of the system provide volatility runs of currency options, deal on existing offers to sell or bids to buy, or may improve on existing offers to sell or bids to buy. Users of the system include banks and traders or dealers employed by banks or other financial institutions. The system and method provide automatic price quotations for a requested option contract by polling internal volatility surfaces of users for prices on the requested contract. Additionally, the system and method ensure a more orderly pattern of trades by categorizing the users into discrete tiers which determine a user's obligations to provide offers and bids to the system.

What is claimed is: 
     
         1 . A financial instrument option contract trading system, comprising:
 a database; and   a system server configured to:
 poll a plurality of workstations for preferences associated with an option contract and volatility data associated with the option contract, wherein the volatility data from each workstation is derived through an interpolation of a volatility surface associated with the option contract; 
 store the volatility data and the preferences in the database; 
 receive a request for a quote for the option contract from a requester; 
 identify from the volatility data a best price for the request, wherein the best price is associated with one of the plurality of workstations; and 
 communicate the best price to the requester in response to the request. 
   
     
     
         2 . The system of  claim 1 , wherein:
 to identify a best price includes to identify a first best price and a second best price; and   to communicate the best price includes to communicate the first best price and the second best price.   
     
     
         3 . The system of  claim 1 , wherein at least one of the plurality of workstations is a web server or a network server. 
     
     
         4 . The system of  claim 1 , wherein the preferences include a credit requirement, wherein the system server is further configured to determine whether the requester satisfies a credit requirement associated with the best price. 
     
     
         5 . The system of  claim 1 , wherein the best price is identified dynamically. 
     
     
         6 . The system of  claim 1 , wherein the request for the quote is received anonymously. 
     
     
         7 . The system of  claim 1 , wherein the volatility data comprises:
 a series of prices corresponding to a designated option contact, wherein the series of prices includes prices for each combination of a series of deltas and expiration dates, wherein the expiration dates include every business day in a year following a transaction associated with the designated option contract; and   a bid/offer spread associated with the designated option contract.   
     
     
         8 . The system of  claim 7 , wherein the deltas in the series are in a range from 5% to 95%. 
     
     
         9 . The system of  claim 7 , wherein the bid/offer spread is in units of volatility. 
     
     
         10 . The system of  claim 8 , wherein the deltas include integer percentages in the range from 5% to 95%. 
     
     
         11 . The system of  claim 1 , wherein the system server is configured to receive additional volatility data. 
     
     
         12 . The system of  claim 11 , wherein the system server is further configured to determine if there is arbitrage based on the additional volatility data. 
     
     
         13 . The system of  claim 12 , wherein to determine if there is arbitrage includes to determine that market participants are using the system server to profit from small price differences in two or more option contracts for a same financial instrument available through the system server. 
     
     
         14 . The system of  claim 12 , wherein the system server is further configured to eliminate the arbitrage by allowing the requester to trade on only one side of the best price. 
     
     
         15 . The system of  claim 12 , wherein the system server is further configured to notify at least one of the workstations if the arbitrage is determined. 
     
     
         16 . The system of  claim 1 , wherein the best price is communicated to two or more requesters. 
     
     
         17 . The system of  claim 1 , wherein the system server is further configured to receive an indication that the volatility data has changed. 
     
     
         18 . The system of  claim 1 , wherein the system server is further configured to receive one or more of: updated volatility data or updated preferences. 
     
     
         19 . The system of  claim 1 , wherein the system server is further configured to perform a trade of the option contract between the requester and one of the plurality of workstations based on the best price. 
     
     
         20 . A method comprising:
 polling a plurality of workstations for preferences associated with an option contract and volatility data associated with the option contract, wherein the volatility data from each workstation is derived through an interpolation of a volatility surface associated with the option contract;   storing the volatility data and the preferences in a database;   receiving a request for a quote for the option contract from a requester;   identifying, by a processor, from the volatility data a best price for the request, wherein the best price is associated with one of the plurality of workstations and the requester satisfies a credit requirement associated with the best price that is indicated in the preferences; and   communicating the best price to the requester in response to the request.