StrongARM Latch <=> Binary Option Black-Scholes
Both have:
- A strike: V_in = 0 for the latch, S = K for the option - A price: the probability of finishing on the high side of the strike, which is a Gaussian CDF of moneyness in both cases
- An uncertainty parameter that controls how sharp that CDF is: σ√(T−t) for BS, input-referred noise σ_n for the latch
- Greeks: sensitivities that diverge at the strike as the uncertainty shrinks
BS binary call: price = Φ( ln(S/K) / (σ√(T−t)) ) StrongARM latch: price = Φ( V_in / σ_n )
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@Microsoft
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