TradingPerpetual Options

Mark Implied Volatility

Paradex Mark IV calculation depends on the following prices :

  • Orderbook Prices : Bid Price, Ask Price, Mid Price
  • Last Trade Price
  • External Price : A perpetual option price estimated using external (Deribit) data

By inverting the Black Scholes Pricing formula for perpetual options, a variance σ2\sigma^2 is implied for each of those 5 prices and smoothed using a 5-minute EWMA for the external variance and 15-second for the internal variances (Ask/Bid/Mid/Last)

The Mark Variance is then derived by combining the Variance EWMAs :

Mark Variance=Median(Median(Ask Variance EWMA, Bid Variance EWMA, Last Trade Variance EWMA),Mid Variance EWMA,External Variance EWMA)\small\text{Mark Variance}=\text{Median}\big(\text{Median}\big(\text{Ask Variance EWMA},~\text{Bid Variance EWMA},~\text{Last Trade Variance EWMA}\big),\\ \text{Mid Variance EWMA},\\ \text{External Variance EWMA}\big)

and Mark IV is finally calculated as the square root of the Mark Variance :

Mark IV=Mark Variance\small\text{Mark IV}=\sqrt{\text{Mark Variance}}