Risk Sharing Building Blocks (RSBB)

Statically replicable derivatives are decomposed into / recomposed from RSBBs using put-call parity and funding-option equivalence relationships directly incorporated into the matching engine. Matching is done at the "atomic" level.

Binary options being among the RSBBs allows for a direct and precise solution to the otherwise approximation for hedging of digital risk.

Atomic matching reduces the number of markets that have to clear, thus providing a boost to liquidity relative to traditional order books.

The atomic matching approach makes structured products uniquely accessible as decomposable orders. Synthetic orders with multiple independent legs are executed simultaneously for consistent execution.

Example: Orders

A call buyer, a put seller, and a forward seller enter orders.

Example: Continuous Limit Order Books - No Matching

In the example, the call buyer, put seller and forward seller must each find the other side of their respective trade. Six total orders are required to clear the market. In the case where there are only these three orders, no match is made.

3 markets require 3x2 sided liquidity

Example: Ithaca Matching Engine - Market Clears

In the Ithaca Matching Engine, a single auction matches the atomic elements of each order. In this example, the call buyer, put seller and forward seller together have offsetting positions and are matched by the engine.

1 single auction for all products

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The Four RSBBs

The four Risk Sharing Building Blocks (RSBBs) are Next Auction Forwards, Defined Maturity Forwards, European Calls and European Binary Calls.

Next Auction Forward

This is a basic forward contract that settles at the next auction - it can also be seen as a 'MEV-Resistant" spot. Through this RSSB, IME allows for auction cleared instruments to settle options and to trade options against delta.

Defined Maturity Forward

The Defined Maturity Forward is a forward settling at a pre-set expiry date. The defined maturity forward allows the ability to trade collateral swaps, spot/forward swaps, forward forwards swaps as standard conditional orders.

European Call Option

A basic European Call Option. Put options are matched as call + defined maturity forward. It is a key building block of other complex payoffs.

European Binary Call

A basic European Binary Call (it pays a fixed amount at expiry or nothing at all). Binary options allow for a direct hedge, rather than an approximation for digital risk payoffs.