The SEC approved Options Clearing Corporation ("OCC") rule amendments enhancing the "Vanilla Option Model" and "Smoothing Algorithm." The amendments will be implemented on September 15, 2019. The OCC noted that this will affect the OCC clearing margin and Risk-Based Haircut / Customer Portfolio Margin theoreticals for the settlement date of September 17, 2019.
As previously covered, the amendments are designed to improve the Vanilla Option Model's theoretical pricing, and to preserve consistency between implied call volatility and implied put volatility in options at the same strike price and maturity. Additionally, the amendments are intended to improve the implied volatility smoothing of the Smoothing Algorithm by eliminating certain timing inconsistencies and gradually capping high volatilities to reduce arbitrage opportunities.
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