Package com.opengamma.strata.pricer.impl.tree

Interface OptionFunction

All Known Implementing Classes:

ConstantContinuousSingleBarrierKnockoutFunction, EuropeanVanillaOptionFunction

public interface OptionFunction

Option function interface used in trinomial tree option pricing.

Method Summary

Modifier and Type	Method	Description
default DoubleArray	getNextOptionValues(double discountFactor, double upProbability, double middleProbability, double downProbability, DoubleArray value, double spot, double downFactor, double middleFactor, int i)	Computes the option values in the intermediate nodes.
default DoubleArray	getNextOptionValues(double discountFactor, DoubleMatrix transitionProbability, DoubleArray stateValue, DoubleArray value, int i)	Computes the option values in the intermediate nodes.
int	getNumberOfSteps()	Obtains number of time steps.
default DoubleArray	getPayoffAtExpiryTrinomial(double spot, double downFactor, double middleFactor)	Computes payoff at expiry for trinomial tree.
DoubleArray	getPayoffAtExpiryTrinomial(DoubleArray stateValue)	Computes payoff at expiry for trinomial tree.
double	getTimeToExpiry()	Obtains time to expiry.

Method Detail

getTimeToExpiry

double getTimeToExpiry()

Obtains time to expiry.

Returns:

time to expiry

getNumberOfSteps

int getNumberOfSteps()

Obtains number of time steps.

Returns:

number of time steps

getPayoffAtExpiryTrinomial

default DoubleArray getPayoffAtExpiryTrinomial(double spot,
                                               double downFactor,
                                               double middleFactor)

Computes payoff at expiry for trinomial tree.

The payoff values for individual nodes at expiry are computed. If trinomial tree has n steps, the returned DoubleArray has the size 2 * n + 1.

Parameters:

spot - the spot

downFactor - the down factor

middleFactor - the middle factor

Returns:

the payoff at expiry

getPayoffAtExpiryTrinomial

DoubleArray getPayoffAtExpiryTrinomial(DoubleArray stateValue)

Computes payoff at expiry for trinomial tree.

The payoff values for individual nodes at expiry are computed from state values at the final layer. For example, the state values represent underlying prices of an option at respective nodes.

Parameters:

stateValue - the state values

Returns:

the payoff at expiry

getNextOptionValues

default DoubleArray getNextOptionValues(double discountFactor,
                                        double upProbability,
                                        double middleProbability,
                                        double downProbability,
                                        DoubleArray value,
                                        double spot,
                                        double downFactor,
                                        double middleFactor,
                                        int i)

Computes the option values in the intermediate nodes.

Given a set of option values in the (i+1)-th layer, option values in the i-th layer are derived. For an option with path-dependence, getNextOptionValues(double, DoubleMatrix, DoubleArray, DoubleArray, int) should be overridden rather than this method.

The size of values must be (2*i+3). However, this is not checked because of its repeated usage.

Parameters:

discountFactor - the discount factor between the two layers

upProbability - the up probability

middleProbability - the middle probability

downProbability - the down probability

value - the option values in the (i+1)-th layer

spot - the spot

downFactor - the down factor

middleFactor - the middle factor

i - the step number for which the next option values are computed

Returns:

the option values in the i-th layer

getNextOptionValues

default DoubleArray getNextOptionValues(double discountFactor,
                                        DoubleMatrix transitionProbability,
                                        DoubleArray stateValue,
                                        DoubleArray value,
                                        int i)

Computes the option values in the intermediate nodes.

Given a set of option values in the (i+1)-th layer, option values in the i-th layer are derived. The down, middle and up probabilities of the j-th lowest node are stored in the {i,0}, {i,1}, {i,2} components of transitionProbability, respectively.

For an option with path-dependence, this method should be overridden.

Parameters:

discountFactor - the discount factor between the two layers

transitionProbability - the transition probability

stateValue - the state value

value - the option value

i - the step number for which the next option values are computed

Returns:

the option values in the i-th layer