Skip to main content
SpringerLink
Log in

A software architecture framework for on-line option pricing

  • Published:
The Journal of Supercomputing Aims and scope Submit manuscript

Abstract

The problem of growing computational complexity in the finance industry demands manageable, high-speed and real-time solutions in solving complex mathematical problems such as option pricing. In current option trading scenarios, determining a fair price for options “any time” and “anywhere” has become vital yet difficult computational problem. In this study, we have designed, implemented, and deployed an architecture for pricing options on-line using a hand-held device that is J2ME-based Mobile computing-enabled and is assisted by web mining tools. In our architecture, the client is a MIDP user interface, and the back end servlet runs on a standalone server bound to a known port address. In addition, the server uses table-mining techniques to mine real-time data from reliable web sources upon the mobile trader’s directive. The server performs all computations required for pricing options since mobile devices have limited battery power, low bandwidth, and low memory. We have parallelized and implemented various computational techniques such as binomial lattice and finite differencing. To the best of our knowledge, this is one of the first studies that facilitate the mobile-enabled-trader to compute the price of an option in ubiquitous fashion. This architecture aims at providing the trader with various computational techniques to avail (to provide results from approximate to accurate results) while on-the-go and to make important and effective trading decisions using the results that will ensure higher returns on investments in options.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  1. Hull JC (2002) Options, futures and other derivatives, 5th edn. Prentice Hall, Englewood Cliffs

    Google Scholar 

  2. Varshney U, Vetter RJ (2002) Mobile commerce: framework, applications and networking support. MONET 7(3):185–198

    MATH  Google Scholar 

  3. Varshney U (2003) Location management for mobile commerce applications in wireless internet environment. ACM Trans Internet Technol 3(3):236–255

    Article  MathSciNet  Google Scholar 

  4. Lyytinen K (2001) Mobile commerce: a new frontier for E-business. In: Proc 34th annual Hawaii international conference on system sciences, vol 9, January 2001, p 3509

  5. Sadeh N (2002) M-commerce: technologies, services, and business models. Wiley, New York

    Google Scholar 

  6. Sheshagiri M, Sadeh N, Gandon F (2004) Using semantic web services for context-aware mobile applications. MobiSys 2004 workshop on context awareness, Boston, June 2004

  7. Sun S, Su C, Ju T (2005) A study of consumer value-added services in mobile commerce: focusing on domestic cellular phone companies in Taiwan, China. In: Proceedings of the 7th international conference on electronic commerce, Xi’an, China, vol 113. Assoc Comput Mach, New York, pp 597–606

    Google Scholar 

  8. Geoffrey E, Phillips N (2004) Mobile commerce and wireless computing systems, 1st edn. Addison-Wesley, Reading

    Google Scholar 

  9. Kargupta H, Park B, Pittie S, Liu L, Kushraj D, Sarkar K (2002) Mobimine: monitoring the stock market from a PDA. ACM SIGKDD Explor 3(2):37–46

    Article  Google Scholar 

  10. Ajenstat J, Jones P (2004) Virtual decision making for stock market trading as a network of cooperating autonomous agents. In: Proceedings (CD-ROM) 37th annual Hawaii international conference on system sciences, Big Island, Hawaii, January 2004

  11. Roche J (2002) Mobile trading comes of age. In: United Nations conference on trade and development, September 2002

  12. Roche J (1999) The global trading village, mutual benefits for the international online trading community and developing countries. In: United Nations conference on trade and development, April 1999

  13. Roche J (2000) WEB to WAP: for a real start of the new millennium. United Nations conference on trade and development, October 2000

  14. FinTools (2000) Options calculator. http://www.fintools.com, Montgomery Investment Technology, March 2000

  15. Windale Technologies (2005) Option pricing analysis X software. http://windale.com/optionsx.php3, June 2005

  16. FIS Group (2003) Option calculator. www.fis-group.com

  17. CommSec (2003) Keep up the market, wherever you are. CommSec. http://www.satisfac.com.au/convCommSecsharetrading.htm, September 2003

  18. QuoTrek (2003) Real time on-line data. http://www.quotrek.com/default.asp, February 2003

  19. Microsoft mobile solution partner, pit trader work wirelessly with pockets PCs and solution from PhatWare. Leapfrog Technologies, Mobility Partner Council, San Diego, CA, 2003

  20. Web A (2004) The tools of the trade. Incisive Media Investments Limited, Hedge Fund Review, London

  21. Chang E, Cheng K (2003) Stock options to complement stock trading. Technical report, Hong Kong Exchanges Clearing Limited—Educational Article, No 18, October 2003

  22. Thinkorswim Inc (2006) Stock option trading: online brokerage services. http://www.thinkorswim.com/tos/displayPage.tos?webpage=softwareLobby, March 2006

  23. Kola K, Thulasiram RK (2005) UNNATI: ubiquitous option pricing—a finance application framework. In: Proceedings of the 13th international conference on advanced computing and communications, Coimbatore, India, December 2005, pp 191–198

  24. Chhabra A, Thulasiraman P, Thulasiram RK (2004) Distributed computing with CORBA and multithreading with Java OpenMP on NoCs: a framework for CFD. In: Proceedings (CD-ROM) 12th international conference on advanced computing and communications, Ahmedabad, India, December 2004

  25. Barua S, Thulasiram RK, Thulasiraman P (2005) High performance computing for a financial application using fast Fourier transform. In: Proceedings of European parallel computing conference (EuroPar 2005), Lisbon, Portugal. Lecture notes in computer science, vol 3648. Springer, Berlin, pp 1246–1253

    Google Scholar 

  26. Rahmail S, Shiller I, Thulasiram RK (2004) Different estimators of the underlying asset’s volatility and option pricing errors: parallel Monte Carlo simulation. In: Proceedings international conference on computational finance and its applications, Bologna, Italy, April 2004, pp 121–131

  27. Thulasiram R, Litov L, Nojumi H, Downing C, Gao G (2001) Multithreaded algorithms for pricing a class of complex options. In: Proceedings (CD-ROM) of the IEEE/ACM international parallel and distributed processing symposium, April 2001

  28. Eckstein R, Topley K (2002) J2ME in a nutshell. O’Reilly, Paris

    Google Scholar 

  29. Mallick M (2003) Mobile and wireless design essentials. Wiley, New York

    Google Scholar 

  30. White J (2001) An introduction to Java 2 Micro edition (J2ME); Java in small things. In: Proceedings of the 23rd international conference on software engineering, Toronto, Ontario, Canada, pp 724–725

  31. Kaisa N, Mattila V, Ruuska S (1999) Design: designing mobile phones and communicators for consumer needs at Nokia. Interactions 6(5):23–26

    Article  Google Scholar 

  32. Itani W, Kayssi A (2004) J2ME application-layer end-to-end security form-commerce. J Netw Comput Appl 27(1):13–32

    Article  Google Scholar 

  33. Tannehill JC, Anderson DA, Pletcher RH (1997) Computational fluid mechanics and heat transfer, 2nd edn. Routledge, London

    Google Scholar 

  34. Thulasiram RK, Zhen C, Chhabra A, Thulasiraman P, Gumel A (2006) A second order L 0 stable algorithm for evaluating European options. Int J High Perform Comput Networking 4(5/6):311–320

    Article  Google Scholar 

  35. Wilmott P, Howison S, Dewyenne J (1995) The mathematics of financial derivatives. Cambridge University Press, Cambridge

    MATH  Google Scholar 

  36. Tavalla D, Randall C (2000) Pricing financial instruments: the finite difference method. Wiley, New York

    Google Scholar 

  37. Thulasiram RK, Downing CT, Gao GR (2000) A multithreaded parallel algorithm for pricing American securities. In: Proceedings (CD-ROM) of the international conference on computational finance, London, England, June 2000

  38. Duffie D (1996) Dynamic asset pricing theory. Princeton University Press, Princeton

    Google Scholar 

  39. Haugh MB, Lo AW (2001) Computational challenges in portfolio management-tomorrow’s hardest problem. Comput Sci Eng 3(3):54–59

    Article  Google Scholar 

  40. Black F, Scholes M (1973) The pricing of options and corporate liabilities. J Polit Econ 81:637–654

    Article  Google Scholar 

  41. Cox JC, Ross SA, Rubinstein M (1979) Options pricing: a simplified approach. J Financ Econ 7:229–263

    Article  MATH  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Department of Computer Science, The University of Manitoba, Winnipeg, MB, Canada

    Kiran Kola, Ruppa K. Thulasiram & Parimala Thulasiraman

Authors
  1. Kiran Kola
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Ruppa K. Thulasiram
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Parimala Thulasiraman
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Ruppa K. Thulasiram.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Kola, K., Thulasiram, R.K. & Thulasiraman, P. A software architecture framework for on-line option pricing. J Supercomput 47, 146–170 (2009). https://doi.org/10.1007/s11227-008-0182-4

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11227-008-0182-4

Keywords

Search

Navigation