Adjusting Interest to price SPX options for Market Making

Discussion in 'Options' started by hfttrader, Aug 10, 2011.

  1. hfttrader


    I'm trying to price SPX options (European style Options on CASH) for market making purpose. I'm using black scholes model to calculate the option prices and using wing volatility model to calculate implied vols on strike level. How do I adjust interest rates so that my option theoretical value factors in the cost of carry on option premium but deducts the cost of carry on stock, as I'll be using S&P 500 futures to hedge my trades and position. Please let me know if I'm thinking in the right direction for trading options on cash and hedging it with futures, so that my theoretical value will be fairly accurate for market making purpose. Thanks in Advance.