How is the Volcube TPI calculated?

The Volcube TPI (Trader Performance Index) is an overall measure of performance in a Volcube options trading simulatioin. It has been carefully calibrated and extensively tested to ensure it is a robust and accurate indicator. We are confident that the Volcube TPI is strongly correlated with each Volcube user’s performance in the options trading simulations. Without understanding the fundamental of options trading, the Greeks, implied volatility and market making, it is almost impossible to achieve a good TPI over the long term.

The Volcube Player TPI is an exponentially weighted moving average of a player’s individual game TPIs. Greater weight is given to more recent games to reflect the player’s current ability. If a player has a particularly bad game and registers a bad score, adversely affecting her Player TPI, then the best advice is to keep playing! The game will then start to be forgotten by the Player TPI calculator, plus with practice the student should naturally improve in any case.

The TPI for a particular game is calculated as a weighted average of a number of factors. These factors are all important for any aspiring options or volatility trader. They include the player’s profitability in the game, the amount of risk she has accumulated, the accuracy, competitiveness and rapidity of her pricing and the appropriateness of the quantities attached to quotes. Since the Volcube simulations are generated in real time by algorithms, market conditions in some simulations will be more favourable than others. The TPI adjusts for this and other game-specific factors. So it is possible for a player to lose money in a game and yet still score a good TPI. This is because, just as in the real world, sometimes the  market conditions are far from conducive to profitable volatility trading. Not losing lots of money could be a good result in a single game. Similarly, only making modest profits or accruing a great deal of unhedged risk, in relatively benign conditions, is likely to dampen a player’s TPI. When the sun is shining, the best Volcube players will make hay and the TPI needs to reflect this.

How reliable is the TPI?

The Volcube TPI has been back-tested on hundreds of real option traders and students of greatly varying experience, from newbie to experienced senior trader. The correlation between knowledge/ability and the Player TPI does appear to be very good. This is our own observation but has also been reported by education managers within trading firms who have deployed Volcube to their intern programmes or new-hire educational programmes. Of course, in a one-shot game, anyone can be lucky or unlucky; just as in the real financial markets. So we emphacise the importance of the Player TPI, particularly when generated over many games (say 20 or more).

How to improve my TPI?

To improve one’s TPI, one needs to improve at many of the skills which make for a successful derivatives trader. Improve your theoretical understanding of options. Understand how theoretical models (and pricing) relate to the market value of options. Learn to make prices accurately and competitively. Learn to make prices and trade relatively rapidly, even under testing condition. Learn how manage option risk and understand how to keep your risk within its limits.

Within the Volcube application, there are plenty of tools to help with all of these skills. From the in-game Market Mentor, to the TPI Report, to the videos and articles in the Learning environment, there are many resources all aimed at helping users improve their TPIs thereby improving their all-round understanding of options and derivatives trading.

Have a question for the author? Happy to help! Email [email protected].

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