trading_formulas 0.0.1

data/.gitignore

@@ -0,0 +1,17 @@
+*.gem
+*.rbc
+.bundle
+.config
+.yardoc
+Gemfile.lock
+InstalledFiles
+_yardoc
+coverage
+doc/
+lib/bundler/man
+pkg
+rdoc
+spec/reports
+test/tmp
+test/version_tmp
+tmp

data/Gemfile

@@ -0,0 +1,4 @@
+source 'https://rubygems.org'
+
+# Specify your gem's dependencies in trading_formulas.gemspec
+gemspec

data/LICENSE

@@ -0,0 +1,22 @@
+Copyright (c) 2013 Matt Osentoski
+
+MIT License
+
+Permission is hereby granted, free of charge, to any person obtaining
+a copy of this software and associated documentation files (the
+"Software"), to deal in the Software without restriction, including
+without limitation the rights to use, copy, modify, merge, publish,
+distribute, sublicense, and/or sell copies of the Software, and to
+permit persons to whom the Software is furnished to do so, subject to
+the following conditions:
+
+The above copyright notice and this permission notice shall be
+included in all copies or substantial portions of the Software.
+
+THE SOFTWARE IS PROVIDED "AS IS", WITHOUT WARRANTY OF ANY KIND,
+EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO THE WARRANTIES OF
+MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND
+NONINFRINGEMENT. IN NO EVENT SHALL THE AUTHORS OR COPYRIGHT HOLDERS BE
+LIABLE FOR ANY CLAIM, DAMAGES OR OTHER LIABILITY, WHETHER IN AN ACTION
+OF CONTRACT, TORT OR OTHERWISE, ARISING FROM, OUT OF OR IN CONNECTION
+WITH THE SOFTWARE OR THE USE OR OTHER DEALINGS IN THE SOFTWARE.

data/README.md

@@ -0,0 +1,34 @@
+# TradingFormulas
+
+This gem contains trading formulas for Technical Analysis and Derivatives
+
+## Installation
+
+Add this line to your application's Gemfile:
+
+    gem 'trading_formulas'
+
+And then execute:
+
+    $ bundle
+
+Or install it yourself as:
+
+    $ gem install trading_formulas
+
+## Usage
+
+s = 50
+k = 50
+r = 0.10
+sigma = 0.30
+time = 0.50
+option_price = TradingFormulas::BlackScholes.call(s, k, r, sigma, time)
+
+## Contributing
+
+1. Fork it
+2. Create your feature branch (`git checkout -b my-new-feature`)
+3. Commit your changes (`git commit -am 'Added some feature'`)
+4. Push to the branch (`git push origin my-new-feature`)
+5. Create new Pull Request

data/Rakefile

@@ -0,0 +1,10 @@
+#!/usr/bin/env rake
+require "bundler/gem_tasks"
+
+# Lines required for testing
+require 'rake/testtask'
+Rake::TestTask.new do |t|
+ t.libs << 'test'
+end
+desc "Run tests"
+task :default => :test

data/lib/trading_formulas/bermudan_options.rb

@@ -0,0 +1,124 @@
+module TradingFormulas
+  ##
+  # Author:: Matt.Osentoski (matt.osentoski@gmail.com)
+  #
+  # This module contains formulas based on bermudan equations
+  # Converted to Python from "Financial Numerical Recipes in C" by:
+  # Bernt Arne Odegaard
+  # http://finance.bi.no/~bernt/gcc_prog/index.html
+  #
+  class BermudanOptions
+    
+    ##
+    # Bermudan Option (Call) using binomial approximations
+    # +s+: spot (underlying) price
+    # +k+: strike (exercise) price
+    # +r+: interest rate
+    # +q+: artificial "probability"
+    # +sigma+: volatility 
+    # +time+: time to maturity 
+    # +potential_exercise_times+: Array of potential exercise times. (Ex: [0.25, 0.75] for 1/4 and 3/4 of a year)
+    # +steps+: Number of steps in binomial tree
+    # *Returns* Option price
+    def self.call(s, k, r, q, sigma, time, potential_exercise_times, steps)
+      delta_t = time/steps
+      r_tmp = Math.exp(r*delta_t)           
+      r_inv = 1.0/r_tmp                
+      u = Math.exp(sigma*Math.sqrt(delta_t)) 
+      uu = u*u
+      d = 1.0/u
+      p_up = (Math.exp((r-q)*(delta_t))-d)/(u-d)
+      p_down = 1.0-p_up
+      prices = Array.new(steps+1)
+      call_values = Array.new(steps+1)  
+      
+      potential_exercise_steps = [] # create list of steps at which exercise may happen
+      (0..(potential_exercise_times.count)).each do |i|
+        t = potential_exercise_times[i].to_f
+        if ( (t>0.0) && (t<time) )
+          potential_exercise_steps << (t/delta_t).to_i
+        end
+      end
+      prices[0] = s*(d**steps) # fill in the endnodes.
+      (1..(steps+1)).each do |i|
+        prices[i] = uu*prices[i-1]
+      end
+      (0..(steps+1)).each do |i|
+        call_values[i] = [0.0, (prices[i]-k)].max
+      end
+      (steps-1).downto(0) do |step|
+        check_exercise_this_step = false
+        (0..(potential_exercise_steps.count)).each do |j|
+          if (step == potential_exercise_steps[j])
+            check_exercise_this_step = true
+          end
+        end   
+        (0..(steps+1)).each do |i|           
+          call_values[i] = (p_up*call_values[i+1].to_f+p_down*call_values[i].to_f)*r_inv
+          prices[i] = d*prices[i+1].to_f
+          if (check_exercise_this_step)
+            call_values[i] = [call_values[i].to_f,prices[i].to_f-k].max
+          end
+        end          
+      end            
+      return call_values[0]   
+    end
+    
+    
+    ##
+    # Bermudan Option (Put) using binomial approximations
+    # +s+: spot (underlying) price
+    # +k+: strike (exercise) price
+    # +r+: interest rate
+    # +q+: artificial "probability"
+    # +sigma+: volatility 
+    # +time+: time to maturity 
+    # +potential_exercise_times+: Array of potential exercise times. (Ex: [0.25, 0.75] for 1/4 and 3/4 of a year)
+    # +steps+: Number of steps in binomial tree
+    # *Returns* Option price
+    def self.put(s, k, r, q, sigma, time, potential_exercise_times, steps)
+      delta_t=time/steps
+      r_tmp = Math.exp(r*delta_t)       
+      r_inv = 1.0/r_tmp                
+      u = Math.exp(sigma*Math.sqrt(delta_t))
+      uu = u*u
+      d = 1.0/u
+      p_up = (Math.exp((r-q)*delta_t)-d)/(u-d)
+      p_down = 1.0-p_up 
+      prices = Array.new(steps+1)
+      put_values = Array.new(steps+1)
+  
+      potential_exercise_steps = [] # create list of steps at which exercise may happen
+      (0..(potential_exercise_times.count)).each do |i|
+        t = potential_exercise_times[i].to_f
+        if ( (t>0.0) && (t<time) )
+          potential_exercise_steps << (t/delta_t).to_i
+        end
+      end
+      prices[0] = s*(d**steps) # fill in the endnodes.
+      (1..(steps+1)).each do |i|
+        prices[i] = uu*prices[i-1]
+      end
+      (0..(steps+1)).each do |i|
+        put_values[i] = [0.0, (k-prices[i])].max # put payoffs at maturity
+      end
+      (steps-1).downto(0) do |step|
+        check_exercise_this_step = false
+        (0..(potential_exercise_steps.count)).each do |j|
+          if (step == potential_exercise_steps[j])
+            check_exercise_this_step = true
+          end
+        end
+        (0..(steps+1)).each do |i|
+          put_values[i] = (p_up*put_values[i+1].to_f+p_down*put_values[i].to_f)*r_inv
+          prices[i] = d*prices[i+1].to_f 
+          if (check_exercise_this_step)
+            put_values[i] = [put_values[i].to_f,k-prices[i].to_f].max
+          end
+        end
+      end      
+      return put_values[0]
+    end
+    
+  end
+end