Time Fractions, Volatility Profiles, and Option Greeks Near Expiration

Summary

The document explains how options systems represent time remaining on expiration day. Rather than using whole-day buckets, pricing and risk software generally represents expiry tenors fractionally and may measure time internally in years, seconds, or volatility time. Fractional time keeps the same calculation path usable as expiration approaches, including when only part of a day remains.

It also points out that accurate intraday hedging depends on more than the clock fraction. An intraday volatility profile can reflect how volatility changes through the session, while overnight and live-session volatility may differ. Holiday treatment and pin risk are additional expiration-related concerns. The answer reflects one practitioner’s experience and suggests that modern market makers may use intraday profiles, but it gives no update frequency, implementation details, or quantitative evidence about hedging performance.

Key ideas

• Options systems commonly represent time to expiration as a fraction rather than a whole number of days.
• Internal time units may be years, seconds, or volatility time, even when displays show days.
• Intraday volatility patterns can affect option risk estimates near expiration.
• Overnight volatility, holidays, and pin risk are relevant considerations for expiration-day risk management.
• The document does not specify how frequently market makers refresh Greeks or hedge positions.

Tags

# how market makers set the time factor to calculate option greeks on the expiration day?


# how market makers set the time factor to calculate option greeks on the expiration day?












how market makers set the time factor to calculate option greeks on the expiration day? does they set time equal 1/24or 2/24 when only 1hour or 2hour left? what frequency market makers update new time to calculate greeks so that they hedge better?

## Answer by Brian B (score 1)

https://quant.stackexchange.com/a/11156

That's usually taken care of in software, and expiration tenors are always set fractionally, because it is both (a) easier and (b) more reliable not to have two different code paths. Allow me to note as well that "days to expiration" is often only for display to humans, with systems working internally using years, seconds, or voltime.

Back when we were market-making options, we didn't use an intraday volatility profile but I always thought we should have and I'm sure quality options market-makers today use one.

Since you are asking questions at this rather elementary level (no offense intended), then aside from "fractional days" you should be at least as motivated to learn about

- those intraday volatility profiles

- overnight versus live trading volatility

- holiday management

- pin risk

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.