Pricing

Four surfaces, three jobs#

A perp exchange has one index price and one mark. This venue trades a whole options surface, so the same roles are surfaces: an oracle bid and ask, and a mark bid and ask. The venue never calls any of them an "index". The oracle says what the listed market thinks, the front says what our makers will actually do, and the mark values what you hold. Nothing trades at the oracle or at the mark.

The oracle: the listed market, joined by straight lines#

The oracle starts from a listed options market — Deribit for BTC, Derive for HYPE — and reads its quotes as they are: each listed strike and expiry has a mid and a half-spread. Between those points the oracle draws straight lines. Along strike it joins neighbouring listed strikes; along time it joins neighbouring listed expiries. It does not fit a model to them, so at the listed points the oracle is the listed quote.

The ends are straight lines too. Towards zero time, a line runs from the shortest listed expiry down to the point where every option is worth exactly its intrinsic. Beyond the longest listed expiry, the last segment is extended. Beyond the listed strikes, the end slope carries on. Everything is held inside the bounds no price can break: never below intrinsic, never above spot for a call (or the strike for a put), and never cheaper for a longer life. A listed row that is not already smooth in strike is first evened out, and the venue counts every time it has to.

The bid and the ask are the mid minus and plus the listed half-spread, drawn the same way (beyond the listed strikes the edge half-spread is held). Both are built around one mid, so the bid is never above the ask. The long decays (past about a year) are the extension of the last listed segment, not a quote anybody has posted. If the listed market's raw quotes have not loaded yet (right after a restart), the venue reads a fitted curve in their place until they do.

The front: the best quote across the makers standing#

Each maker quotes its own curve. The front is the highest bid and the lowest ask among the makers standing, at each strike and decay. Within one price level a fill splits across makers by standing size (pro-rata) — there is no time priority, so nobody's arrival order is recorded or rewarded. Every open and every close trades at the front.

A maker is either AUTO or CUSTOM. An AUTO maker quotes the oracle's bid and ask exactly, described next. A CUSTOM maker brings its own pricing model: it posts its own curve, from its own agent, and the venue does not price it. What the model is, good or bad, is the maker's own affair. An untouched CUSTOM curve starts from the oracle, so it stands inside the corridor until the maker moves it.

AUTO quotes the oracle, flat#

An AUTO maker adds nothing of its own. Its bid is the oracle's bid and its ask is the oracle's ask, at every strike and decay, so its revenue is the listed half-spread. It has no spread to set and no view to hold. A maker keeps one safety rail: each side stops quoting when the maker reaches its cap on that side, or when its deposit no longer covers its margin, and it starts again as soon as that clears (section 4). If the oracle's prices go stale, AUTO makers stop standing until fresh ones arrive.

The corridor decides who may set the front#

The corridor is the oracle's bid and ask pushed outward until each is twice as far from the mid as it was. It permits a maker to quote wider than the oracle, or tighter. What it forbids is crossing: a bid above the oracle's ask, or an ask below the oracle's bid, is not admitted.

The mark: what a position is valued at#

The mark is the raw front's relevant side — the front bid for a long position, the front ask for a short — with no fitting, clamped into the corridor. Where nobody stands on that side at that strike, the mark is the oracle's side there. It is never a mid, and an option price is never called a mark.

The mark has four jobs and only four: valuing a position, the margin test, the liquidation flag and the withdraw test. It clears nothing. The clamp means one maker alone cannot move everyone's margin.

Where a model still appears#

Nothing the venue trades is priced by a model: the oracle is the listed market joined by lines, and a CUSTOM maker carries its own. The venue keeps one model of how the asset can move, a jump-diffusion law fitted to the asset's own price history, as a ruler: it measures how big a maker's book is on the EARN card, and nothing else. Margin for sold options is a plain closed form with no model at all (section 3).

What it costs#

A maker's half-spread is its revenue, and it rides the extrinsic only: ask = intrinsic + extrinsic × (1 + h), bid = intrinsic + extrinsic × (1 − h). The moneyness floor is never crossed. On top of that the venue charges a small taker fee on option opens and closes, and takes a cut of funding. The numbers, who pays them and where they go are in section 6.