/**
* Copyright (C) 2009 - present by OpenGamma Inc. and the OpenGamma group of companies
*
* Please see distribution for license.
*/
package com.opengamma.analytics.financial.model.option.pricing.analytic;
import org.apache.commons.lang.Validate;
import com.opengamma.analytics.financial.model.option.definition.LogOptionDefinition;
import com.opengamma.analytics.financial.model.option.definition.StandardOptionDataBundle;
import com.opengamma.analytics.math.function.Function1D;
import com.opengamma.analytics.math.statistics.distribution.NormalDistribution;
import com.opengamma.analytics.math.statistics.distribution.ProbabilityDistribution;
/**
*
* Pricing model for log options.
*
*/
public class LogOptionModel extends AnalyticOptionModel<LogOptionDefinition, StandardOptionDataBundle> {
private final ProbabilityDistribution<Double> _normalProbabilityDistribution = new NormalDistribution(0, 1);
@Override
public Function1D<StandardOptionDataBundle, Double> getPricingFunction(final LogOptionDefinition definition) {
Validate.notNull(definition);
final Function1D<StandardOptionDataBundle, Double> pricingFunction = new Function1D<StandardOptionDataBundle, Double>() {
@SuppressWarnings("synthetic-access")
@Override
public Double evaluate(final StandardOptionDataBundle data) {
Validate.notNull(data);
final double s = data.getSpot();
final double k = definition.getStrike();
final double t = definition.getTimeToExpiry(data.getDate());
final double b = data.getCostOfCarry();
final double r = data.getInterestRate(t);
final double sigma = data.getVolatility(t, k);
final double df = Math.exp(-r * t);
final double sigmaT = sigma * Math.sqrt(t);
final double x = (Math.log(s / k) + t * (b - sigma * sigma * 0.5)) / sigmaT;
return df * sigmaT * (_normalProbabilityDistribution.getPDF(x) + x * _normalProbabilityDistribution.getCDF(x));
}
};
return pricingFunction;
}
}