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27 changes: 27 additions & 0 deletions src/error/chains.rs
Original file line number Diff line number Diff line change
Expand Up @@ -544,6 +544,24 @@ impl ChainError {
reason: reason.to_string(),
})
}

/// Creates a new error for invalid chain option data price calculation.
///
/// This method constructs a `OptionDataError` with the `PriceCalculationError` variant when
/// parameters used to build an option chain fail to calculate the option price.
///
/// # Parameters
///
/// * `reason` - A description explaining why the option price failed to calculate
///
/// # Returns
///
/// A `ChainError` containing the parameter validation error details
pub fn invalid_price_calculation(reason: &str) -> Self {
ChainError::OptionDataError(OptionDataErrorKind::PriceCalculationError(
reason.to_string(),
))
}
}

impl From<String> for ChainError {
Expand Down Expand Up @@ -766,6 +784,15 @@ mod tests_extended {
));
}

#[test]
fn test_invalid_price_calculation_helper_method() {
let error = ChainError::invalid_price_calculation("Division by zero");
assert_eq!(
format!("{error}"),
"Option data error: Price calculation error: Division by zero"
);
}

#[test]
fn test_chain_error_file_error() {
let error = ChainError::FileError(FileErrorKind::IOError(io::Error::new(
Expand Down
32 changes: 30 additions & 2 deletions src/model/utils.rs
Original file line number Diff line number Diff line change
Expand Up @@ -473,10 +473,14 @@ pub fn calculate_optimal_price_range(
) -> Result<(Positive, Positive), ChainError> {
let days_to_expiry = expiration_date.get_days()?;
let years_to_expiry = Decimal::from(days_to_expiry) / dec!(365.0);
let years_to_expiry_sqrt = years_to_expiry.sqrt().ok_or_else(|| {
ChainError::invalid_price_calculation(
"sqrt() failed to calculate for years_to_expiry value",
)
})?;

let confidence_interval = dec!(4.0);
let volatility_factor =
implied_volatility * years_to_expiry.sqrt().unwrap() * confidence_interval;
let volatility_factor = implied_volatility * years_to_expiry_sqrt * confidence_interval;

let lower_bound = underlying_price * (dec!(1.0) - volatility_factor);
let upper_bound = underlying_price * (dec!(1.0) + volatility_factor);
Expand Down Expand Up @@ -683,3 +687,27 @@ mod tests_mean_and_std {
assert_relative_eq!(std.to_f64(), 0.00907213, epsilon = 0.00000001);
}
}

#[cfg(test)]
mod tests_model_utils {
use super::*;

#[test]
fn test_calculate_optimal_price_range() {
let underlying_price = pos_or_panic!(100.0);
let strike_price = pos_or_panic!(90.0);
let implied_volatility = pos_or_panic!(0.20);
let expiration_date = ExpirationDate::Days(Positive::TWO);

let (min_price, max_price) = calculate_optimal_price_range(
underlying_price,
strike_price,
implied_volatility,
expiration_date,
)
.unwrap();

assert_eq!(min_price, pos_or_panic!(62.0));
assert_eq!(max_price, pos_or_panic!(118.0));
}
}