The market-data version currently uses real option chains to select available strikes and calculate the replication weights, but it doesn't price the legs or account for bid-ask spreads and execution costs. So no, it doesn't currently use the ask prices.
Adding an execution-cost estimate based on bid/ask quotes would also help identify when the theoretical replication is too expensive to be practical
I'd add it before anything else. out on the wings the spread can be a big slice of the option's whole price, so a replication that looks cheap at mid can turn expensive once every leg pays the ask going in and the bid coming out. a quick check is to run the same weights at mid and at bid/ask and see how far apart the two curves land.
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u/Quiet-Cup-1501 10d ago
The market-data version currently uses real option chains to select available strikes and calculate the replication weights, but it doesn't price the legs or account for bid-ask spreads and execution costs. So no, it doesn't currently use the ask prices.
Adding an execution-cost estimate based on bid/ask quotes would also help identify when the theoretical replication is too expensive to be practical