Explain the Difference between ‘Theoretical Price’ and ‘Quoted Price’ in an RFQ.
The theoretical price is the calculated fair value of the option derived from a pricing model (like Black-Scholes) using current market inputs. The quoted price is the actual price offered by the market maker in the RFQ, which is the theoretical price adjusted by a profit margin that covers transaction costs, risk premium, and the market maker's desired profit.