Recipe: The Black-Scholes-Merton Formula Optimization for Intel® Xeon Phi™ Processor

Introduction

Financial derivative pricing is a cornerstone of quantitative finance. The most common form of financial derivatives is common stock options, which are contracts between two parties regarding buying or selling an asset (specifically shares of stock) at a certain time at an agreed price. The two types of options are calls and puts. A call option gives the holder the right to buy the asset by a certain date for a certain price. A put option gives the holder the right to sell the asset by a certain date for a certain price. The contract price is called the exercise price or strike price. The date in the contract is known as the expiration date or maturity. American options can be exercised at any time before the expiration date. European options can be exercised only on the expiration date.

Typically, the value of an option f, is determined by the following factors:

  • S – the current price of the underlying asset
  • X – the strike price of the option
  • T – the time to the expiration
  • σ – the volatility of the underlying asset
  • r – the continuously compounded risk-free rate

In their 1973 paper, “The Pricing of Options and Corporate Liabilities,” Fischer Black and Myron Scholes created a mathematical description of financial markets and stock options in frameworks built by researchers from Luis Bachelier to Paul Samuelson. Jack Treynor arrived at partial differential equations, which Robert Merton first referred as Black-Scholes Model.

Black-Scholes Model

This PDE has many solutions, corresponding to all the different derivatives with the same underlying asset S. The specific derivative obtained depends on the boundary conditions used while solving this equation. In the case of European call options, the key boundary condition is 

fcall = max(S-K, 0) when t=T

In the case of European put options, it is

fput = max(K-S, 0) when t=T

Black-Scholes-Merton Formula

Shortly after Black-Scholes’s historical paper, Robert Merton was the first one to publish a paper recognizing the significance and coined the term Black-Scholes option pricing model. Merton is also credited with a closed-form solution to the Black-Scholes Equation for European call options c, and the European put option p known as the Black-Scholes-Merton formula.

Black-Scholes-Merton Formula

The function N(x) is the cumulative normal distribution function. It calculates the probability that a variable with a standard normal distribution of Ф(0,1) will be less than x. In most cases, N(x) is approximated using a polynomial function defined as:

Black-Scholes-Merton Formula

Code Access

The source code for Black-Scholes-Merton formula is maintained by Shuo Li and is available under the BSD 3-Clause Licensing Agreement. The program runs natively on Intel® Xeon Phi™ processors in a single node environment.

To get access to the code and test workloads, go to the source location and download the BlackScholes.tar file.

Build and Run Directions

Here are the steps for building the program:

  1. Install Intel® Parallel Studio XE 2016 SP 3 on your system.
  2. Source the environment variable script file
  3. Untar the BlackScholes.tar
  4. Type make to build the binaries for Single and Double Precision:
    1. For Single Precision processing: BlackScholesSP.knl
    2. For Double Precision processing: BlackScholesDP.knl
  5. Make sure the host machine is powered by Intel® Xeon Phi™ processors

    $ lscpu

    Architecture:                   x86_64

    CPU op-mode(s):           32-bit, 64-bit

    Byte Order:                     Little Endian

    CPU(s):                           272

    On-line CPU(s) list:         0-271

    Thread(s) per core:         4

    Core(s) per socket:         68

    Socket(s):                        1

    NUMA node(s):                8

    Vendor ID:                        GenuineIntel

    CPU family:                      6

    Model:                               87

    Model name:                     Intel(R) Xeon Phi(TM) CPU 7250 @ 1.40GHz

    Stepping:                          1

    CPU MHz:                        1400.273

    BogoMIPS:                        2793.61

    Virtualization:                     VT-x

    L1d cache:                        32K

    L1i cache:                         32K

    L2 cache:                         1024K

    NUMA node0 CPU(s):     5,6,11,12,17,18,23-25,73-86,135-148,197-210,259-271

    NUMA node1 CPU(s):     1,2,7,8,13,14,19,20,43-58,105-120,167-182,229-244

    NUMA node2 CPU(s):     3,4,9,10,15,16,21,22,59-72,121-134,183-196,245-258

    NUMA node3 CPU(s):     0,26-42,87-104,149-166,211-228For Double Precision processing: BlackScholesDP.kn

  6. Make sure the memory mode for Intel® Xeon Phi™ processors is flat

    # syscfg /d biossettings "memory mode"
    Memory Mode
    ===========
    Current Value : Flat
       ---------------------
       Possible Values
       ---------------
       Cache : 00
       Flat : 01
       Hybrid : 02
       Auto : 03
  7. Run BlackScholesSP.knl and BlackSchoelsDP.knl under numactl with parameter  –m1.

    [sli@wsl-knl-02 clean]$ numactl -m1 ./BlackScholesSP.knl
    Black-Scholes Formula Single Precision.
    Compiler Version  = 16
    Release Update    = 3
    Build Time        = May 27 2016 17:57:13
    Input Dataset     = 160432128
    Repetitions       = 1000
    Chunk Size        = 64
    Worker Threads    = 272
    
    ==========================================
    Total Cycles                   = 19090695400
    Cycles/OptionPair at thread 0  = 32.37
    Time Elapsed                   = 13.6678
    Options/sec                    = 23.4759
    
    ==========================================
    [sli@wsl-knl-02 clean]$ numactl -m1 ./BlackScholesDP.knl
    Black-Scholes Formula Double Precision.
    Compiler Version  = 16
    Release Update    = 3
    Build Time        = May 27 2016 17:57:14
    Input Dataset     = 160432128
    Repetitions       = 1000
    Chunk Size        = 256
    Worker Threads    = 272
    
    =============================================
    Total Cycles                   = 22208060392
    Cycles/OptionPair at thread 0  = 37.65
    Time Elapsed                   = 15.8996
    Options/sec                    = 20.1806
    =============================================

Intel Sample Source Code License Agreement

AttachmentSize
File BlackScholesRecipe.tar30 KB
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