Extended pricers

Module: Shoals.PricingExtended.

This module includes Bachelier for a normal underlying, Black for a forward-priced option, Garman-Kohlhagen for FX, and Margrabe and Stulz exchange options. It also exports asset-or-nothing and cash-or-nothing calls and puts, and standard-normal helpers.

Standard normal helpers

def n_cdf_ext(x: f32) -> f32
def n_pdf_ext(x: f32) -> f32

n_cdf_ext is the standard normal CDF, computed as 0.5 * erfc(-x / sqrt(2)), and n_pdf_ext is the density. For example, n_cdf_ext(0) == 0.5 and n_pdf_ext(0) == 1 / sqrt(2 * pi), approximately 0.3989423.

Bachelier (normal underlying)

def bachelier_call(f: f32, k: f32, sigma: f32, t: f32, df: f32) -> f32
def bachelier_put(f: f32, k: f32, sigma: f32, t: f32, df: f32) -> f32

The Bachelier model prices an option on a normally distributed forward f with absolute (not lognormal) volatility sigma, then discounts by the explicit discount factor df. For example, an at-the-money Bachelier call equals sigma * phi(0) times the discount factor:

px = bachelier_call(cast(100.0, f32), cast(100.0, f32), cast(10.0, f32), cast(1.0, f32), cast(1.0, f32))
// px == 10.0 * 0.3989423

Bachelier call and put obey parity c - p == df * (f - k).

Black (forward)

def black_call(f: f32, k: f32, sigma: f32, t: f32, df: f32) -> f32
def black_put(f: f32, k: f32, sigma: f32, t: f32, df: f32) -> f32

The Black model prices an option on a lognormal forward f and discounts by df. When the forward equals s * exp(r * t) and df == exp(-r * t), the Black call equals the Black-Scholes call. For example:

f = mul(cast(100.0, f32), exp(mul(cast(0.05, f32), cast(1.0, f32))))
df = exp(neg(mul(cast(0.05, f32), cast(1.0, f32))))
black = black_call(f, cast(100.0, f32), cast(0.2, f32), cast(1.0, f32), df)
// black equals bs_call_scalar(100, 100, 0.05, 0.2, 1.0)

Black call and put obey parity c - p == df * (f - k).

Garman-Kohlhagen (FX)

def garman_kohlhagen_call(s: f32, k: f32, r_d: f32, r_f: f32, sigma: f32, t: f32) -> f32
def garman_kohlhagen_put(s: f32, k: f32, r_d: f32, r_f: f32, sigma: f32, t: f32) -> f32

The Garman-Kohlhagen model prices a European FX option, where r_d is the domestic rate and r_f the foreign rate. With a zero foreign rate it reduces to Black-Scholes. For example:

gk = garman_kohlhagen_call(cast(1.25, f32), cast(1.3, f32), cast(0.04, f32), cast(0.0, f32), cast(0.1, f32), cast(0.5, f32))
// gk equals bs_call_scalar(1.25, 1.3, 0.04, 0.1, 0.5)

The pair obeys parity c - p == s * exp(-r_f * t) - k * exp(-r_d * t).

Margrabe (exchange option)

def margrabe_exchange_call(s1: f32, s2: f32, sigma1: f32, sigma2: f32, rho: f32, t: f32) -> f32

The Margrabe formula prices the option to exchange asset two for asset one, with per-asset volatilities sigma1 and sigma2 and correlation rho. The effective variance is sigma1^2 + sigma2^2 - 2 * rho * sigma1 * sigma2. When that variance is near zero the function returns the intrinsic value max(s1 - s2, 0). When the two assets are identical (equal spots, equal vols, correlation one) the option is worthless. For example:

px = margrabe_exchange_call(cast(100.0, f32), cast(100.0, f32), cast(0.2, f32), cast(0.2, f32), cast(1.0, f32), cast(1.0, f32))
// px == 0.0

Other payoffs and numerical helpers

pe_margrabe_stulz includes per-asset continuous yields q1 and q2 in the exchange-option formula. The pe_asset_or_nothing_* and pe_cash_or_nothing_* functions price digital calls and puts. These pricers assume the usual positive inputs for their model formulas; their constructors do not validate market data.

Separate modules provide lattice and PDE helpers. Shoals.Trees includes tr_binom_european_call_generic, which accepts a nonnegative step count, finite inputs, and an up probability in [0, 1]. Shoals.Pde.pde_thomas_solve solves a supplied tridiagonal system without pivoting. It substitutes one when a pivot's absolute magnitude is below 1e-10, without a diagnostic. Near-singular systems are outside its accuracy contract.