The Black-Scholes option pricing model, implemented in Clojure based on the description at Wikipedia and these code samples.



;; ;; Black-Scholes option pricing model ;; ;; Copyright (C) 2010 Paul Legato. All rights reserved. ;; Licensed under the New BSD License. See the README file for details. ;; ;; Disclaimer: This code comes with NO WARRANTY, express or implied. ;; There may be any number of bugs. Use at your own risk. ;; ;; References: ;; - https://secure.wikimedia.org/wikipedia/en/wiki/Black%E2%80%93Scholes ;; - http://www.espenhaug.com/black_scholes.html (ns clojure-options.black-scholes (:require incanter.distributions)) (defn d1 [spot timeleft strike riskfree sigma] (/ (+ (Math/log (/ spot strike)) (* (+ riskfree (/ (* sigma sigma) 2)) timeleft)) (* sigma (Math/sqrt timeleft)))) (defn d2 [spot timeleft strike riskfree sigma] (- (d1 spot timeleft strike riskfree sigma) (* sigma (Math/sqrt timeleft)))) (defn- n [val] (incanter.distributions/cdf (incanter.distributions/normal-distribution) val)) (defn call "Returns the theoretic value of a European call option on the given underlying based on the Black-Scholes model. * spot - spot price of the underlying * timeleft - time to expiration, in years * strike - option strike price * riskfree - annual continuous risk-free interest rate * sigma - volatility of the underlying " [spot timeleft strike riskfree sigma] (- (* spot (n (d1 spot timeleft strike riskfree sigma))) (* strike (Math/exp (* (- riskfree) timeleft)) (n (d2 spot timeleft strike riskfree sigma))))) (defn put "Returns the theoretic value of a European put option on the given underlying based on the Black-Scholes model. * spot - spot price of the underlying * timeleft - time to expiration, in years * strike - option strike price * riskfree - annual continuous risk-free interest rate * sigma - volatility of the underlying " [spot timeleft strike riskfree sigma] (- (* strike (Math/exp (* (- riskfree) timeleft)) (n (- (d2 spot timeleft strike riskfree sigma)))) (* spot (n (- (d1 spot timeleft strike riskfree sigma)))))) (defn call-delta [spot timeleft strike riskfree sigma] (n (d1 spot timeleft strike riskfree sigma))) (defn put-delta [spot timeleft strike riskfree sigma] (- (n (d1 spot timeleft strike riskfree sigma)) 1)) (defn- nprime [val] (incanter.distributions/pdf (incanter.distributions/normal-distribution) val)) (defn gamma [spot timeleft strike riskfree sigma] (/ (nprime (d1 spot timeleft strike riskfree sigma)) (* spot sigma (Math/sqrt timeleft)))) (defn vega [spot timeleft strike riskfree sigma] (* spot (nprime (d1 spot timeleft strike riskfree sigma)) (Math/sqrt timeleft))) (defn call-theta [spot timeleft strike riskfree sigma] (- (- (/ (* spot (nprime (d1 spot timeleft strike riskfree sigma)) sigma) (* 2 (Math/sqrt timeleft)))) (* riskfree strike (Math/exp (* (- riskfree) timeleft)) (n (d2 spot timeleft strike riskfree sigma))))) (defn put-theta [spot timeleft strike riskfree sigma] (- (- (/ (* spot (nprime (d1 spot timeleft strike riskfree sigma)) sigma) (* 2 (Math/sqrt timeleft)))) (* riskfree strike (Math/exp (* (- riskfree) timeleft)) (n (- (d2 spot timeleft strike riskfree sigma)))))) (defn call-rho [spot timeleft strike riskfree sigma] (* strike timeleft (Math/exp (* (- riskfree) timeleft)) (n (d2 spot timeleft strike riskfree sigma)))) (defn put-rho [spot timeleft strike riskfree sigma] (* (- strike) timeleft (Math/exp (* (- riskfree) timeleft)) (n (- (d2 spot timeleft strike riskfree sigma)))))

This code uses the new Incanter Distributions module, which hasn’t been released yet, so it requires the latest master version from Github.

Most of the values agree with those produced at BloBek’s calculator, with the exception of theta. I imagine this has to do with the units used for the “days left to expiration” field; my calculator uses fractions of a year, while BloBek doesn’t specify whether his days are to be trading days or calendar days. It could also be a bug in one of our implementations.

In Part 2, I’ll build a simple Swing GUI for the calculator.

Update: Part 2, with the Swing GUI, is now available. You can also get the entire project’s source code from GitHub.