Pricing Model And Fee Incentives

Market making and pricing options is relatively complex. To keep pricing fair for vault depositors and end users, SDX utilizes a series of fees added onto a Mark Price to incentivize trades that reduce liquidity pool risk.

• Mark Price: Approximation of Black-Scholes-Merton models fair value for a particular option contract.

• Dynamic Bid-Ask Spread Fee: Multiplier on the mark price that introduces a bid-ask spread, and incentives trades that rebalances portfolio greeks.

• Capital Utilization Fee: A fee for trades that lock up pool capital to mint new options. Options that are sold from existing pool inventory (from another user selling options to the pool) do not incur the Capital Utilization Fee.

• Trade Fee: A fee charged by the SDX program.

• Pricing Example