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Odds & Pricing

Pricing:​

Buffer uses the Black-Scholes Algorithm to derive a realistic price for each above/below contract, using the following data points:

  • Current Asset Price: price feeds are provided by the Pyth Oracle
  • Distance to Strike Price: current distance to the strike price set at the time a trade is opened
  • Distance to Strike Date: current distance to strike date set at the time a trade is opened
  • Implied Volatility: Buffer proxies current implied volatility (iv) as historical volality (hv). hv of a contract is updated for each contract on a daily basis.

Odds:​

The odds for Above and Below positions can change as the markets move closer to maturity. Factors such as asset price movement and the remaining time to the strike date dynamically influence the odds of hitting a particular strike price. As these odds fluctuate with market conditions, so does the value of your position.

Market Response to Trading Activity: In addition to odds and prices changing with market conditions, the prices for above and below contracts also adjust based on trader activity. As more traders buy contracts from either side of the market, prices are adjusted in response to balance the risk. Once the trading window closes, the risk/reward is locked in and will not change. If your position is successful when the market matures, you received payout worth 1 whole USDC irrespective of the buy-in. If a market resolves in a way that your contract is on the losing side, the token becomes valueless.