tomjwells / derivatives

Derivatives Valuation Model

This toolkit provides a comprehensive suite of tools to price derivatives, specifically European options. The toolkit uses Monte Carlo simulations and the risk-neutral pricing method to accurately estimate option prices.

Structure

Currently, all function definitions are implemented in the file derivative_valuation.py.

The file run_examples.py contains examples of pricing a European option using the Black-Scholes formula, Monte Carlo, and calculating the implied volatility.

Features

• Monte Carlo Simulations: This method involves running a large number of trials to model the price of an underlying asset, taking into account factors such as volatility and time to expiration.

• Risk-Neutral Pricing: This is a method used to price derivatives when the risk-free rate is known. It assumes that the expected return of the underlying asset is the risk-free rate.

• European Options: The toolkit can price both European options, which can only be exercised at expiration

• Implied Volatility: The Newton-Raphson method is used in conjunction with the Black-Scholes formula to estimate the implied volatility of an asset.

Installation

All Python dependencies can be readily installed with:

pip install -r requirements.txt

Contact

If you have any questions or suggestions, please feel free to get in touch.