finance_engine 0.0.1 → 0.0.2

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data/Gemfile.lock

@@ -1,7 +1,7 @@
 PATH
   remote: .
   specs:
-    finance_engine (0.0.1)
+    finance_engine (0.0.2)
       distribution
 
 GEM

data/README.md

@@ -44,6 +44,8 @@ At the moment there are only five limited modules. Here we will try to demonstra
 
 	FE.gordon_growth_model({ :rate => 0.05, :dividend => 100, :growth => 0.02, :value => 3333.33 }) - Using 3 of the 4 input values the Gordon Growth Model method will calculate the 4th input. 
 
+	FE.gordon_growth_model({ :rate => 0.05, :dividend => 100, :growth => 0.02 }) - Will return a value of 3333.33.
+
 4) FBS = FinanceEngine::Black_Scholes
 
 	FBS.new({ :current_stock_price => 100, :time => 5, :strike_price => 95, :risk_free_rate => 0.05, :volatility => 0.25 }) - After initializing a new instance of Black_Scholes run the build options method. This will create and store the put call and price data on the instance of Black Scholes. This is different from the other modules in that it will store the variables in the instance.
@@ -54,14 +56,22 @@ At the moment there are only five limited modules. Here we will try to demonstra
 
 	FTVM.future_value_cash_flows(years, cashflows, rates) - Years, cashflows and rates are all arrays matching in length. This method will return the future value of a series of cash flows when given the time, amount and effective interest rates.
 
+6) AO = FinanceEngine::American_Options
+
+	AO.new(Price, Volatility, Risk Free Rate, Strike Price) - Initializes a new instance of the american options storing the price, volatility, rf rate and strike price.
+	AO.build_american_options(years to expiration, number of periods within that year to exercise options) - this method will build out a binary tree to calculate the current option prices based on the future stock value and strike price.
+	AO.current_call_price - returns the calculated current call price.
+	AO.current_put_price - returns the calculated current put price.
 
 
 
 
 ## Contributing
 
-1. Fork it ( https://github.com/[my-github-username]/finance_engine/fork )
+1. Fork it ( https://github.com/penkar/finance_engine/fork )
 2. Create your feature branch (`git checkout -b my-new-feature`)
 3. Commit your changes (`git commit -am 'Add some feature'`)
 4. Push to the branch (`git push origin my-new-feature`)
 5. Create a new Pull Request
+
+What would be useful? Methods in Time value of money to calculate the rate, and nper.

data/lib/finance_engine/americanoptionpricing.rb

@@ -0,0 +1,72 @@
+require 'distribution'
+module FinanceEngine
+	class American_Options
+		attr_accessor :price, :vol, :rf, :strike, :time, :tree, :up_factor, :down_factor, :probability
+		def initialize(price, volatility, risk_free_rate, strike)
+			@price = price
+			@vol = volatility
+			@rf = risk_free_rate
+			@strike = strike
+			@tree = {}
+		end
+
+		def build_american_options(years_to_expiration, periods_in_year)
+			up_fac(periods_in_year**-1)
+			down_fac(periods_in_year**-1)
+			probability_increase_price(periods_in_year**-1)
+			create_tree_for_years(years_to_expiration, periods_in_year**-1)
+		end
+
+		def create_tree_for_years(years_to_expiration, periods_in_year, node='original_', price=@price)
+			@tree[node]={'price'=>price.round(4)}
+			if years_to_expiration.round(3) == 0
+				@tree[node]['call'] = call_value(price)
+				@tree[node]['put'] = put_value(price)
+			elsif years_to_expiration.round(3) > 0
+				create_tree_for_years((years_to_expiration - periods_in_year), periods_in_year, node+'u', price * @up_factor )
+				create_tree_for_years((years_to_expiration - periods_in_year), periods_in_year, node+'d', price * @down_factor)
+				get_put_value(node, periods_in_year)
+				get_call_value(node, periods_in_year)
+			end
+		end
+
+		def get_put_value(node, periods_in_year)
+			up = @tree[node+'u']['put']
+			down = @tree[node+'d']['put']
+			@tree[node]['put'] = (Math::E**(-@rf* periods_in_year)*(@probability * up)+Math::E**(-@rf* periods_in_year)*((1-@probability) * down)).round(4)
+		end
+
+		def get_call_value(node, periods_in_year)
+			up = @tree[node+'u']['call']
+			down = @tree[node+'d']['call']
+			@tree[node]['call'] = (Math::E**(-@rf* periods_in_year)*(@probability * up)+Math::E**(-@rf* periods_in_year)*((1-@probability) * down)).round(4)
+		end
+
+		def put_value(price)
+			[0,price - strike].max.round(4)
+		end
+
+		def call_value(price)
+			[0,strike - price].max.round(4)
+		end
+
+		def up_fac(time)
+			@up_factor = Math::E**(@vol*(time)**(0.5))
+		end
+
+		def down_fac(time)
+			@down_factor = Math::E**(-@vol*(time)**(0.5))
+		end	
+		
+		def probability_increase_price(time)
+			@probability = (Math::E**(time*@rf)-@down_factor)/(@up_factor - @down_factor)
+		end
+
+		def current_call_price
+			@tree['original_']['call']
+		end
+		def current_put_price
+			@tree['original_']['put']
+		end
+	end
+end

data/lib/finance_engine/tvm.rb

@@ -47,20 +47,12 @@ module FinanceEngine
 		#Calculates the present value of an annuity. Both formulas below, non-loop in use.
 		def self.pv_annuity(pmt,time,rate)
 			pv = pmt*(1-(1+rate)**-time)/rate
-			# pv = 0
-			# 1.upto(time) do |x|
-			# 	pv += pmt / ((1+rate)**x)
-			# end
 			return pv
 		end
 
 		#Calculates the future value of an annuity. Both formulas below, non-loop in use.
 		def self.fv_annuity(pmt,time,rate)
 			fv = pmt*((1+rate)**time -1)/rate
-			# fv = 0
-			# 1.upto(time) do |x|
-			# 	fv += pmt * ((1+rate)**(time-x))
-			# end
 			return fv
 		end
 			

data/lib/finance_engine/version.rb

@@ -1,3 +1,3 @@
 module FinanceEngine
-  VERSION = "0.0.1"
+  VERSION = "0.0.2"
 end

data/lib/finance_engine.rb

@@ -1,4 +1,5 @@
 require "finance_engine/version"
+require_relative 'finance_engine/americanoptionpricing.rb'
 require_relative 'finance_engine/optionpricing.rb'
 require_relative 'finance_engine/tvm.rb'
 require_relative 'finance_engine/eareay.rb'

data/spec/entities/americanoptionpricing_spec.rb

@@ -0,0 +1,42 @@
+require_relative '../spec_helper.rb'
+
+describe FinanceEngine::American_Options do 
+	it 'It should be able to initialize with price, volatility and rate.' do
+		first = FinanceEngine::American_Options.new(100,0.2,0.05,90)
+		expect(first.rf).to eq(0.05)
+		expect(first.vol).to eq(0.2)
+		expect(first.price).to eq(100)
+		expect(first.strike).to eq(90)
+	end
+
+	it 'Can calc the % up and down a stock will go.' do
+		first = FinanceEngine::American_Options.new(32,0.2,0.10,90)
+		ans = first.up_fac(1.0/12)
+		ans = first.down_fac(1.0/12)
+		expect(first.up_factor.round(4)).to be_within(0.0005).of(1.0594)
+		expect(first.down_factor.round(4)).to be_within(0.0005).of(0.9439)
+	end	
+
+	it 'It should be able calculate the correct probability of an increase of price for a 1 month period.' do
+		first = FinanceEngine::American_Options.new(32,0.2,0.10,90)
+		expect(first.price).to eq(32)
+		first.up_fac(1.0/12)
+		first.down_fac(1.0/12)
+		first.probability_increase_price(1.0/12)
+		expect(first.probability.round(4)).to be_within(0.0005).of(0.5576)
+	end
+
+	it 'Be able to create tree.' do
+		first = FinanceEngine::American_Options.new(32,0.2,0.10,35)
+		first.build_american_options(2, 1)
+		expect(first.tree['original_dd']['price']).to be_within(0.0005).of(21.450)
+		expect(first.tree['original_uu']['price']).to be_within(0.0005).of(47.7384)
+	end
+
+	it 'Get american put and call option values.' do
+		first = FinanceEngine::American_Options.new(100,0.3,0.05,100)
+		first.build_american_options(1, 4)
+		expect(first.tree['original_']['put']).to be_within(0.0005).of(13.5240)
+		expect(first.tree['original_']['call']).to be_within(0.0005).of(8.6469)
+	end
+end

metadata

@@ -1,14 +1,14 @@
 --- !ruby/object:Gem::Specification
 name: finance_engine
 version: !ruby/object:Gem::Version
-  version: 0.0.1
+  version: 0.0.2
 platform: ruby
 authors:
 - Jeffrey Penkar
 autorequire: 
 bindir: bin
 cert_chain: []
-date: 2014-11-21 00:00:00.000000000 Z
+date: 2014-12-01 00:00:00.000000000 Z
 dependencies:
 - !ruby/object:Gem::Dependency
   name: bundler
@@ -95,14 +95,17 @@ files:
 - README.md
 - README.md~
 - Rakefile
+- finance_engine-0.0.1.gem
 - finance_engine.gemspec
 - lib/finance_engine.rb
+- lib/finance_engine/americanoptionpricing.rb
 - lib/finance_engine/annuity.rb
 - lib/finance_engine/eareay.rb
 - lib/finance_engine/gordon_growth_model.rb
 - lib/finance_engine/optionpricing.rb
 - lib/finance_engine/tvm.rb
 - lib/finance_engine/version.rb
+- spec/entities/americanoptionpricing_spec.rb
 - spec/entities/annuity_spec.rb
 - spec/entities/eareay_spec.rb
 - spec/entities/gordon_growth_model_spec.rb
@@ -134,6 +137,7 @@ signing_key:
 specification_version: 4
 summary: Financial Engine Gem. Financial methods and tools.
 test_files:
+- spec/entities/americanoptionpricing_spec.rb
 - spec/entities/annuity_spec.rb
 - spec/entities/eareay_spec.rb
 - spec/entities/gordon_growth_model_spec.rb