tst_binomial_approximations.cc

Financial Recipes

// file tst_binomial.cc
// author: Bernt A Odegaard

void test_binomial_pricing(){
    cout << "Testing Binomial Pricing" << endl;
    double spot = 100.0;
    double exercise = 100.0;
    double r = 0.1;
    double sigma = 0.25;
    double time_to_maturity=1.0;
    int steps = 100;
    cout << " Standard option prices" << endl;
    cout << " european " << endl;
    cout << " call: " << option_price_call_european_binomial(spot,exercise,r,sigma,time_to_maturity,steps) 
	 << endl;
    cout << " put: " << option_price_put_european_binomial(spot,exercise,r,sigma,time_to_maturity,steps) 
	 << endl;
    cout << " american " <<endl;
    cout << " call: " << option_price_call_american_binomial(spot,exercise,r,sigma,time_to_maturity,steps) 
	 << endl;
    cout << " put: " << option_price_put_american_binomial(spot,exercise,r,sigma,time_to_maturity,steps) 
	 << endl;

    cout << " Option prices with continous payout " << endl;
    double y=0.02;
    cout << " american " <<endl;
    cout << " call: " << option_price_call_american_binomial_payout(spot,exercise,r,y,sigma,time_to_maturity,steps) 
	 << endl;
    cout << " put: " << option_price_put_american_binomial_payout(spot,exercise,r,y,sigma,time_to_maturity,steps) 
	 << endl;
    cout << " Pricing with discrete dividends " << endl;
    vector<double> dividend_times; 
    dividend_times.push_back(0.25);
    dividend_times.push_back(0.75);

    vector<double> dividend_yields;
    dividend_yields.push_back(0.025);
    dividend_yields.push_back(0.025);

    cout << "Proportional dividends " << endl;
    cout << " american call, dividends=2.5%, 2.5%, price= " 
	 << option_price_call_american_proportional_dividends_binomial(
	     spot,exercise,r,sigma,time_to_maturity,steps,
	     dividend_times, dividend_yields) 
	 << endl;

    vector<double> dividend_amounts; 
    dividend_amounts.push_back(2.5);
    dividend_amounts.push_back(2.5);

    cout << "Discrete dividends: "  << endl;
    cout << " american call, dividends 2.5 2.5, price= " 
	 << option_price_call_american_discrete_dividends_binomial(
	    spot,exercise,r,sigma,time_to_maturity,steps,
	    dividend_times, dividend_amounts) 
	 << endl;
    cout << " done testing binomial pricing " << endl;
};

void test_binomial_partials(){
    cout << "Testing binomial partials " << endl;
    double S = 100.0;
    double X = 100.0;
    double r = 0.1; 
    double sigma = 0.25;
    double time = 1.0;
    int no_steps=100;
    cout << " american call delta = " 
	 <<   option_price_delta_american_call_binomial(S,X,r,sigma,time, no_steps) 
	 << endl;
    cout << " american put delta = " 
	 <<   option_price_delta_american_put_binomial(S,X,r,sigma,time, no_steps) 
	 << endl;

    double delta, gamma, theta, vega, rho;
    option_price_partials_american_call_binomial(S,X,r, sigma, time, no_steps,
				     delta, gamma, theta, vega, rho);
    cout << "CALL price partials " << endl;
    cout << " Delta = " << delta << endl;
    cout << " gamma = " << gamma << endl;
    cout << " theta = " << theta << endl;
    cout << " vega  = " << vega << endl;
    cout << " rho   = " << rho << endl;
    option_price_partials_american_put_binomial(S,X,r, sigma, time, no_steps,
				     delta, gamma, theta, vega, rho);
    cout << "PUT price partials" << endl;
    cout << " Delta = " << delta << endl;
    cout << " gamma = " << gamma << endl;
    cout << " theta = " << theta << endl;
    cout << " vega  = " << vega << endl;
    cout << " rho   = " << rho << endl;
  };

void test_binomial_approximations(){
    test_binomial_pricing();
    test_binomial_partials();
};