radonlab 0.1.0__tar.gz

radonlab-0.1.0/.github/workflows/ci.yml

@@ -0,0 +1,53 @@
+name: ci
+
+on: [push, pull_request]
+
+permissions:
+  contents: read
+
+concurrency:
+  group: ci-${{ github.ref }}
+  cancel-in-progress: true
+
+jobs:
+  test:
+    name: py${{ matrix.python-version }}
+    runs-on: ubuntu-latest
+    strategy:
+      fail-fast: false
+      matrix:
+        python-version: ["3.9", "3.10", "3.11", "3.12"]
+    steps:
+      - uses: actions/checkout@v4
+      - name: Set up Python ${{ matrix.python-version }}
+        uses: actions/setup-python@v5
+        with:
+          python-version: ${{ matrix.python-version }}
+          cache: pip
+      - name: Install (with dev extras)
+        run: |
+          python -m pip install --upgrade pip
+          pip install -e ".[dev]"
+      - name: Lint (ruff)
+        run: ruff check src tests
+      - name: Test (pytest)
+        run: pytest -q
+
+  build:
+    name: build sdist and wheel
+    runs-on: ubuntu-latest
+    needs: test
+    steps:
+      - uses: actions/checkout@v4
+      - uses: actions/setup-python@v5
+        with:
+          python-version: "3.12"
+      - name: Build
+        run: |
+          python -m pip install --upgrade pip build
+          python -m build
+      - name: Upload artifacts
+        uses: actions/upload-artifact@v4
+        with:
+          name: radonlab-dist
+          path: dist/*

radonlab-0.1.0/.gitignore

@@ -0,0 +1,28 @@
+# Byte-compiled / caches
+__pycache__/
+*.py[cod]
+*.egg-info/
+.eggs/
+.pytest_cache/
+.ruff_cache/
+.mypy_cache/
+
+# Build artifacts
+build/
+dist/
+*.whl
+*.tar.gz
+
+# Example outputs
+examples/*.csv
+examples/*.png
+
+# Environments
+.venv/
+venv/
+env/
+
+# OS / editor
+.DS_Store
+.idea/
+.vscode/

radonlab-0.1.0/LICENSE

@@ -0,0 +1,201 @@
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radonlab-0.1.0/PKG-INFO

@@ -0,0 +1,198 @@
+Metadata-Version: 2.4
+Name: radonlab
+Version: 0.1.0
+Summary: Monte Carlo Greeks for discontinuous payoffs: likelihood-ratio, smoothing and conditional Monte Carlo, benchmarked against closed-form references.
+Project-URL: Homepage, https://github.com/quantsingularity/radonlab
+Project-URL: Source, https://github.com/quantsingularity/radonlab
+Project-URL: Issues, https://github.com/quantsingularity/radonlab/issues
+Author: Abrar Ahmed
+License-Expression: Apache-2.0
+License-File: LICENSE
+Keywords: greeks,likelihood-ratio,malliavin,monte-carlo,option-pricing,quantitative-finance,sensitivities
+Classifier: Development Status :: 4 - Beta
+Classifier: Intended Audience :: Financial and Insurance Industry
+Classifier: Intended Audience :: Science/Research
+Classifier: License :: OSI Approved :: Apache Software License
+Classifier: Programming Language :: Python :: 3
+Classifier: Programming Language :: Python :: 3.9
+Classifier: Programming Language :: Python :: 3.10
+Classifier: Programming Language :: Python :: 3.11
+Classifier: Programming Language :: Python :: 3.12
+Classifier: Topic :: Office/Business :: Financial :: Investment
+Classifier: Typing :: Typed
+Requires-Python: >=3.9
+Requires-Dist: numpy>=1.22
+Requires-Dist: scipy>=1.8
+Provides-Extra: benchmark
+Requires-Dist: matplotlib>=3.5; extra == 'benchmark'
+Requires-Dist: pandas>=1.4; extra == 'benchmark'
+Provides-Extra: dev
+Requires-Dist: matplotlib>=3.5; extra == 'dev'
+Requires-Dist: mypy>=1.0; extra == 'dev'
+Requires-Dist: pandas>=1.4; extra == 'dev'
+Requires-Dist: pytest>=7.0; extra == 'dev'
+Requires-Dist: ruff>=0.1; extra == 'dev'
+Provides-Extra: test
+Requires-Dist: pandas>=1.4; extra == 'test'
+Requires-Dist: pytest>=7.0; extra == 'test'
+Description-Content-Type: text/markdown
+
+# RadonLab
+
+**Monte Carlo Greeks for discontinuous payoffs**, done correctly and benchmarked
+against closed-form references.
+
+When an option's payoff is discontinuous (a digital that pays a fixed amount if
+the underlying finishes above a strike, a barrier that knocks out on touch), the
+textbook _pathwise_ (infinitesimal perturbation) estimator for its sensitivities
+quietly breaks: the derivative of the payoff is zero almost everywhere, so the
+estimate collapses toward zero. `radonlab` implements the established remedies,
+tests each one against a known analytic answer, and benchmarks them side by side
+so you can see _which method to use and what it costs_.
+
+Pure NumPy/SciPy. Apache-2.0. No copyleft dependencies.
+
+## Companion C++ implementation
+
+A header-only C++20 port lives at
+[github.com/quantsingularity/radonlab-cpp](https://github.com/quantsingularity/radonlab-cpp).
+The two libraries share the same methods and the same closed-form references, and
+the C++ analytics are cross-checked against this library's values (which are
+verified to machine precision by complex-step differentiation), so the two agree
+to 1e-9 across languages. The C++ side additionally provides adjoint algorithmic
+differentiation (a full Greek vector from one reverse sweep) and exact
+second-order Greeks. This Python library is the reference and carries the research
+extensions (Merton jump-diffusion and a path-dependent Malliavin delta).
+
+## What's inside
+
+Estimators (all with per-path standard errors):
+
+- **Likelihood-ratio method (LRM)**: differentiates the _density_, never the
+  payoff, so it is unbiased for digitals and other discontinuous payoffs.
+  Delta, vega and gamma.
+- **Smoothing**: replaces the payoff with a `C¹` approximation of bandwidth `h`
+  and applies the pathwise method to it. A tunable bias/variance trade-off.
+- **Conditional Monte Carlo**: for barriers, integrates out the crossing event
+  with the Brownian-bridge non-crossing probability, giving an estimator that is
+  unbiased for the _continuously-monitored_ price at any number of steps and
+  Lipschitz in spot (so its delta comes out by the pathwise method).
+- **Pathwise** and **finite-difference (bump)** baselines, kept so their failure
+  modes on discontinuous payoffs are visible and measurable.
+
+Closed-form Black-Scholes analytics (the ground truth) for European calls/puts,
+cash-or-nothing and asset-or-nothing digitals, and continuously-monitored
+down-and-out / down-and-in calls. Every explicit Greek formula is checked
+against complex-step differentiation of the price to machine precision.
+
+## Install
+
+```bash
+pip install -e ".[benchmark,test]"
+```
+
+Runtime dependencies are just `numpy` and `scipy`. `pandas`/`matplotlib` are only
+needed for the benchmark table and plots.
+
+## Quick start
+
+```python
+from radonlab import GeometricBrownianMotion, CashOrNothingCall, Greek
+from radonlab import likelihood_ratio, pathwise, analytics
+
+model = GeometricBrownianMotion(S0=100, r=0.03, sigma=0.20, T=1.0)
+payoff = CashOrNothingCall(strike=100)
+
+# Ground truth
+ref = analytics.cash_or_nothing_call(100, 100, 0.03, 0.20, 1.0, greek="delta")
+
+# Likelihood ratio: unbiased for the digital
+lrm = likelihood_ratio(model, payoff, Greek.DELTA, n_paths=1_000_000)
+print(lrm)                    # delta=... +/- ...  [likelihood-ratio]
+print(lrm.confidence_interval(0.95))
+
+# Naive pathwise: collapses to ~0, badly biased
+pw = pathwise(model, payoff, Greek.DELTA, n_paths=1_000_000)
+print(pw.value, "vs analytic", ref)
+```
+
+## The math, briefly
+
+Under geometric Brownian motion `S_T = S₀·exp((r − q − ½σ²)T + σ√T·Z)`, with
+`Z ~ N(0,1)`, a price is `P = e^{−rT} E[f(S_T)]`.
+
+- **LRM** writes `∂P/∂θ = e^{−rT} E[f(S_T)·∂_θ log p(S_T;θ)]`. The score functions
+  are `Z/(S₀σ√T)` for delta, `(Z²−1)/σ − √T·Z` for vega, and
+  `(Z² − σ√T·Z − 1)/(S₀²σ²T)` for gamma. `f` is never differentiated, so a
+  jump in `f` is no problem.
+- **Pathwise** writes `∂P/∂θ = e^{−rT} E[f′(S_T)·∂_θ S_T]`. Fine when `f` is
+  Lipschitz (vanilla), degenerate when `f` jumps (digital).
+- **Conditional MC** for a down-and-out call multiplies the terminal payoff by
+  `∏ᵢ(1 − exp(−2(Xᵢ−b)(Xᵢ₊₁−b)/(σ²Δt)))`, the exact bridge probability of not
+  breaching `b = ln B` between simulated points.
+
+Full references are in each module's docstring (Broadie-Glasserman 1996,
+Glasserman 2003, Reiner-Rubinstein 1991, and the smoothed-perturbation and
+Malliavin literature).
+
+## Benchmark
+
+Reproduce with `python examples/benchmark_digital_delta.py` (1,000,000 paths,
+seed 0). Delta of an at-the-money cash-or-nothing call, `S₀=K=100`, `r=3%`,
+`σ=20%`, `T=1`. Analytic reference delta = **0.019333**. Ranked by standard
+error, the metric that actually reflects an estimator's accuracy:
+
+| method                      | value   | std error | \|error\| vs analytic | biased? |
+| --------------------------- | ------- | --------- | --------------------- | ------- |
+| likelihood-ratio            | 0.01939 | 2.84e-05  | 5.9e-05               | no      |
+| smoothing (h=default)       | 0.01921 | 4.56e-05  | 1.2e-04               | no      |
+| finite-difference (1% bump) | 0.01934 | 9.49e-05  | 8.5e-06               | no      |
+| pathwise                    | 0.00000 | 0.00e+00  | 1.9e-02               | **yes** |
+
+Two things to read off it. First, **pathwise is 100% wrong**: it returns
+exactly zero, because the digital's derivative is zero almost everywhere.
+Second, among the unbiased methods **the likelihood-ratio estimator has the
+lowest variance** (about 3.3× smaller standard error than the 1% finite
+difference) and needs no bump to tune.
+
+And finite difference forces a bad choice: the same run sweeping the bump size
+shows the standard error exploding as the bump shrinks, while a large bump
+introduces its own bias:
+
+| rel. bump | value    | std error | \|error\|      |
+| --------- | -------- | --------- | -------------- |
+| 1e-01     | 0.018620 | 2.36e-05  | 7.1e-04 (bias) |
+| 1e-02     | 0.019311 | 9.49e-05  | 2.2e-05        |
+| 1e-03     | 0.019161 | 3.04e-04  | 1.7e-04        |
+| 1e-04     | 0.017274 | 9.15e-04  | 2.1e-03        |
+
+The likelihood-ratio method sidesteps that trade-off entirely. This is the
+whole reason the library exists.
+
+## Testing
+
+```bash
+pytest
+```
+
+The suite validates the analytics by complex-step differentiation, confirms each
+Monte Carlo estimator agrees with the analytic Greek within a few standard
+errors, and documents the pathwise failure on digitals as an explicit test.
+
+## Scope and honesty
+
+This release covers the Black-Scholes / GBM world and, in `radonlab.merton`, the
+Merton jump-diffusion model with a closed-form digital reference: it shows the
+likelihood-ratio delta weight is unchanged by jumps and validates the estimator
+against the closed form. It is a rigorous, tested core rather than a kitchen
+sink: the estimators and their validation are real, and where a method is
+expected to be biased (pathwise on a digital), the library shows it rather than
+hiding it. It also includes a genuinely path-dependent frontier estimator in
+`radonlab.asian`: the likelihood-ratio / Malliavin delta of a geometric
+Asian digital, validated against the closed form, with a weight built from
+the whole path. Stochastic volatility, arithmetic-Asian and lookback
+payoffs, and a JIT/vectorized backend are natural next steps.
+
+## License
+
+Apache-2.0. See [LICENSE](LICENSE).

radonlab-0.1.0/README.md

@@ -0,0 +1,159 @@
+# RadonLab
+
+**Monte Carlo Greeks for discontinuous payoffs**, done correctly and benchmarked
+against closed-form references.
+
+When an option's payoff is discontinuous (a digital that pays a fixed amount if
+the underlying finishes above a strike, a barrier that knocks out on touch), the
+textbook _pathwise_ (infinitesimal perturbation) estimator for its sensitivities
+quietly breaks: the derivative of the payoff is zero almost everywhere, so the
+estimate collapses toward zero. `radonlab` implements the established remedies,
+tests each one against a known analytic answer, and benchmarks them side by side
+so you can see _which method to use and what it costs_.
+
+Pure NumPy/SciPy. Apache-2.0. No copyleft dependencies.
+
+## Companion C++ implementation
+
+A header-only C++20 port lives at
+[github.com/quantsingularity/radonlab-cpp](https://github.com/quantsingularity/radonlab-cpp).
+The two libraries share the same methods and the same closed-form references, and
+the C++ analytics are cross-checked against this library's values (which are
+verified to machine precision by complex-step differentiation), so the two agree
+to 1e-9 across languages. The C++ side additionally provides adjoint algorithmic
+differentiation (a full Greek vector from one reverse sweep) and exact
+second-order Greeks. This Python library is the reference and carries the research
+extensions (Merton jump-diffusion and a path-dependent Malliavin delta).
+
+## What's inside
+
+Estimators (all with per-path standard errors):
+
+- **Likelihood-ratio method (LRM)**: differentiates the _density_, never the
+  payoff, so it is unbiased for digitals and other discontinuous payoffs.
+  Delta, vega and gamma.
+- **Smoothing**: replaces the payoff with a `C¹` approximation of bandwidth `h`
+  and applies the pathwise method to it. A tunable bias/variance trade-off.
+- **Conditional Monte Carlo**: for barriers, integrates out the crossing event
+  with the Brownian-bridge non-crossing probability, giving an estimator that is
+  unbiased for the _continuously-monitored_ price at any number of steps and
+  Lipschitz in spot (so its delta comes out by the pathwise method).
+- **Pathwise** and **finite-difference (bump)** baselines, kept so their failure
+  modes on discontinuous payoffs are visible and measurable.
+
+Closed-form Black-Scholes analytics (the ground truth) for European calls/puts,
+cash-or-nothing and asset-or-nothing digitals, and continuously-monitored
+down-and-out / down-and-in calls. Every explicit Greek formula is checked
+against complex-step differentiation of the price to machine precision.
+
+## Install
+
+```bash
+pip install -e ".[benchmark,test]"
+```
+
+Runtime dependencies are just `numpy` and `scipy`. `pandas`/`matplotlib` are only
+needed for the benchmark table and plots.
+
+## Quick start
+
+```python
+from radonlab import GeometricBrownianMotion, CashOrNothingCall, Greek
+from radonlab import likelihood_ratio, pathwise, analytics
+
+model = GeometricBrownianMotion(S0=100, r=0.03, sigma=0.20, T=1.0)
+payoff = CashOrNothingCall(strike=100)
+
+# Ground truth
+ref = analytics.cash_or_nothing_call(100, 100, 0.03, 0.20, 1.0, greek="delta")
+
+# Likelihood ratio: unbiased for the digital
+lrm = likelihood_ratio(model, payoff, Greek.DELTA, n_paths=1_000_000)
+print(lrm)                    # delta=... +/- ...  [likelihood-ratio]
+print(lrm.confidence_interval(0.95))
+
+# Naive pathwise: collapses to ~0, badly biased
+pw = pathwise(model, payoff, Greek.DELTA, n_paths=1_000_000)
+print(pw.value, "vs analytic", ref)
+```
+
+## The math, briefly
+
+Under geometric Brownian motion `S_T = S₀·exp((r − q − ½σ²)T + σ√T·Z)`, with
+`Z ~ N(0,1)`, a price is `P = e^{−rT} E[f(S_T)]`.
+
+- **LRM** writes `∂P/∂θ = e^{−rT} E[f(S_T)·∂_θ log p(S_T;θ)]`. The score functions
+  are `Z/(S₀σ√T)` for delta, `(Z²−1)/σ − √T·Z` for vega, and
+  `(Z² − σ√T·Z − 1)/(S₀²σ²T)` for gamma. `f` is never differentiated, so a
+  jump in `f` is no problem.
+- **Pathwise** writes `∂P/∂θ = e^{−rT} E[f′(S_T)·∂_θ S_T]`. Fine when `f` is
+  Lipschitz (vanilla), degenerate when `f` jumps (digital).
+- **Conditional MC** for a down-and-out call multiplies the terminal payoff by
+  `∏ᵢ(1 − exp(−2(Xᵢ−b)(Xᵢ₊₁−b)/(σ²Δt)))`, the exact bridge probability of not
+  breaching `b = ln B` between simulated points.
+
+Full references are in each module's docstring (Broadie-Glasserman 1996,
+Glasserman 2003, Reiner-Rubinstein 1991, and the smoothed-perturbation and
+Malliavin literature).
+
+## Benchmark
+
+Reproduce with `python examples/benchmark_digital_delta.py` (1,000,000 paths,
+seed 0). Delta of an at-the-money cash-or-nothing call, `S₀=K=100`, `r=3%`,
+`σ=20%`, `T=1`. Analytic reference delta = **0.019333**. Ranked by standard
+error, the metric that actually reflects an estimator's accuracy:
+
+| method                      | value   | std error | \|error\| vs analytic | biased? |
+| --------------------------- | ------- | --------- | --------------------- | ------- |
+| likelihood-ratio            | 0.01939 | 2.84e-05  | 5.9e-05               | no      |
+| smoothing (h=default)       | 0.01921 | 4.56e-05  | 1.2e-04               | no      |
+| finite-difference (1% bump) | 0.01934 | 9.49e-05  | 8.5e-06               | no      |
+| pathwise                    | 0.00000 | 0.00e+00  | 1.9e-02               | **yes** |
+
+Two things to read off it. First, **pathwise is 100% wrong**: it returns
+exactly zero, because the digital's derivative is zero almost everywhere.
+Second, among the unbiased methods **the likelihood-ratio estimator has the
+lowest variance** (about 3.3× smaller standard error than the 1% finite
+difference) and needs no bump to tune.
+
+And finite difference forces a bad choice: the same run sweeping the bump size
+shows the standard error exploding as the bump shrinks, while a large bump
+introduces its own bias:
+
+| rel. bump | value    | std error | \|error\|      |
+| --------- | -------- | --------- | -------------- |
+| 1e-01     | 0.018620 | 2.36e-05  | 7.1e-04 (bias) |
+| 1e-02     | 0.019311 | 9.49e-05  | 2.2e-05        |
+| 1e-03     | 0.019161 | 3.04e-04  | 1.7e-04        |
+| 1e-04     | 0.017274 | 9.15e-04  | 2.1e-03        |
+
+The likelihood-ratio method sidesteps that trade-off entirely. This is the
+whole reason the library exists.
+
+## Testing
+
+```bash
+pytest
+```
+
+The suite validates the analytics by complex-step differentiation, confirms each
+Monte Carlo estimator agrees with the analytic Greek within a few standard
+errors, and documents the pathwise failure on digitals as an explicit test.
+
+## Scope and honesty
+
+This release covers the Black-Scholes / GBM world and, in `radonlab.merton`, the
+Merton jump-diffusion model with a closed-form digital reference: it shows the
+likelihood-ratio delta weight is unchanged by jumps and validates the estimator
+against the closed form. It is a rigorous, tested core rather than a kitchen
+sink: the estimators and their validation are real, and where a method is
+expected to be biased (pathwise on a digital), the library shows it rather than
+hiding it. It also includes a genuinely path-dependent frontier estimator in
+`radonlab.asian`: the likelihood-ratio / Malliavin delta of a geometric
+Asian digital, validated against the closed form, with a weight built from
+the whole path. Stochastic volatility, arithmetic-Asian and lookback
+payoffs, and a JIT/vectorized backend are natural next steps.
+
+## License
+
+Apache-2.0. See [LICENSE](LICENSE).