Thursday, June 18, 2009

what trading systems use quantitative pricing

In option, pricing system is one of the most important components of a trading system. A tiny advantage in your bid/offer price will beat the market.  I guess GS has higher trading volume than other firms because they trade at more competitive prices. Pricing and risk are the 2 sides of the same coin. GS has secDB and stronger risk system and better hedging so they can trade aggressively.

Pricing is less quantitative in illiquid markets such as Muni. Not many banks offer standardized interchangeable products.

Pricing is more quantitative in prop trading i.e. trading using bank’s own money.

Pricing is more quantitative in algo trading.

Pricing is less important in broker systems i.e. agency trading. Profit is the commission and the spread on the prices clients specify.

Prime brokerage is similarly reliant on valuation system, margin calculation determines how much money to lend out. The more the house lends, the more fee it can collect, but this must be calculated against the risk exposure.

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