vanilla-option-pricing 0.1.0
Stochastic model for vanilla option pricing
License: MIT
Requires Python: >=3.7,<4.0
Keywords: quantitative-finance,option-pricing,stochastic-models

# Vanilla Option Pricing
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A Python package implementing stochastic models to price financial options.  
The theoretical background and a comprehensive explanation of models and their parameters
can be found is the paper *[Fast calibration of two-factor models for energy option pricing](https://arxiv.org/abs/1809.03941)*
by Emanuele Fabbiani, Andrea Marziali and Giuseppe De Nicolao, freely available on arXiv.  

### Installing
The preferred way to install the package is using pip,
but you can also download the code and install from source

To install the package using pip:

```bash
pip install vanilla_option_pricing
```

### Quickstart
Let's create a call option.

```python
from datetime import datetime, timedelta
from vanilla_option_pricing.option import VanillaOption

option = VanillaOption(
    spot=100,
    strike=101,
    dividend=0,
    date=datetime.today(),
    maturity=datetime.today() + timedelta(days=30),
    option_type='c',
    price=1,
    instrument='TTF'
)
```

We can compute the implied volatility and create a Geometric Brownian Motion 
model with it. Of course, if now we ask price the option using the Black framework, 
we'll get back the initial price.

```python
from vanilla_option_pricing.models import GeometricBrownianMotion

volatility = option.implied_volatility_of_undiscounted_price
gbm_model = GeometricBrownianMotion(volatility)
gbm_price = gbm_model.price_option_black(option)
print(f'Actual price: {option.price}, model price: {gbm_price}')
```

But, if we adopt a different model, say a Log-spot price mean reverting to 
generalised Wiener process model (MLR-GW), we will get a different price.

```python
import numpy as np
from vanilla_option_pricing.models import LogMeanRevertingToGeneralisedWienerProcess

p_0 = np.eye(2)
model = LogMeanRevertingToGeneralisedWienerProcess(p_0, 1, 1, 1)
lmrgw_price = model.price_option_black(option)
print(f'Actual price: {option.price}, model price: {lmrgw_price}')
```

In the previous snippet, the parameters of the LMR-GW model were chosen
at random. We can also calibrate the parameters of a model against 
listed options.

```python
from datetime import date
from vanilla_option_pricing.option import VanillaOption
from vanilla_option_pricing.models import OrnsteinUhlenbeck, GeometricBrownianMotion
from vanilla_option_pricing.calibration import ModelCalibration

data_set = [
    VanillaOption('TTF', 'c', date(2018, 1, 1), 2, 101, 100, date(2018, 2, 1)),
    VanillaOption('TTF', 'p', date(2018, 1, 1), 2, 98, 100, date(2018, 2, 1)),
    VanillaOption('TTF', 'c', date(2018, 1, 1), 5, 101, 100, date(2018, 5, 31))
]

models = [
    GeometricBrownianMotion(0.2),
    OrnsteinUhlenbeck(p_0=0, l=100, s=2)
]
calibration = ModelCalibration(data_set)

print(f'Implied volatilities: {[o.implied_volatility_of_undiscounted_price for o in data_set]}\n')

for model in models:
    result, trained_model = calibration.calibrate_model(model)
    print('Optimization results:')
    print(result)
    print(f'Calibrated parameters: {trained_model.parameters}\n\n')
```