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.
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.
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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.
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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.
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European Options: The toolkit can price both European options, which can only be exercised at expiration
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Implied Volatility: The Newton-Raphson method is used in conjunction with the Black-Scholes formula to estimate the implied volatility of an asset.
All Python dependencies can be readily installed with:
pip install -r requirements.txt
If you have any questions or suggestions, please feel free to get in touch.