Mark Price

What is Mark Price?

Mark Price is used as the reference price of the position token and is added to Risk Premium to calculate Execution Price, which is the basis for trading options.

F : Futures price of the underlying asset adjusted for the expiration date

σ : Log-normal with constant volatility

r : Risk-free interest rate

K : Strike price

T : Time to expiry

Call Option Pricing Formula

c=erT[FN(d1)KN(d2)]c = e^{-rT} [FN(d_1) - KN(d_2)]

Put Option Pricing Formula

p=erT[KN(d2)FN(d1)]p = e^{-rT} [KN(-d_2) - FN(-d_1)]
d1=ln(F/K)+(σ2/2)TσTd1 = \frac{\ln(F/K) + (\sigma^2/2)T}{\sigma\sqrt{T}}
d2=ln(F/K)(σ2/2)TσT=d1σTd2 = \frac{\ln(F/K) - (\sigma^2/2)T}{\sigma\sqrt{T}} = d1 - \sigma\sqrt{T}
N(x)=Cumulative Normal Distribution FunctionN(x) = \text{Cumulative Normal Distribution Function}

This is why pricing must essentially use the futures price and implied volatility of the underlying asset. This data is currently sourced from the most reliable CEX in real-time, which is why Moby's options prices are the most real-time and accurate reflection of the market price, while other DeFi protocols' options prices are out of sync with the actual market price.

Last updated