Dynamic Price Banding Mechanism of Gold Options

To enhance the stability of market prices, TAIFEX plans to expand dynamic price banding mechanism (DPBM) to Gold Options in June 2023, the operations of DPBM are as Index Options that had applied before. TAIFEX will check each new order (including limit orders, market orders and market with protection orders) and simulate a matched price based on the order book at the time. TAIFEX will reject buy (sell) orders with a simulated matched price above (below) the upper (lower) limit of TAIFEX’ dynamic price band.

The calculation of the limits of dynamic price band is as follow:

  • (1) The Upper Limit=Base Price + Variation Range.
  • (2) The Lower Limit=Base Price - Variation Range.

Base Price is calculated using options pricing model with the following parameters as follow:

  • (1) Underlying Price
  • (2) Volatility
  • (3) Interest Rate
  • (4) Strike Price
  • (5) Time to expiration

The Calculation of Variation Range is the recent daily settlement price of the nearest month of the NT Dollar Gold futures × the rejection threshold. The rejection threshold of Gold options is 2%.

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