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enhancementNew feature or requestNew feature or requestpricingRelated to options pricingRelated to options pricingpriority-lowNice-to-have improvementsNice-to-have improvements
Description
Description
Implement pricing support for Power options. Power options have payoffs that are a power function of the underlying asset price.
Current State
- Power options return PricingError::UnsupportedOptionType
- No pricing model for non-linear payoffs
Target State
- Fully functional Power option pricing
- Support for various power exponents
- Accurate pricing of non-linear payoffs
Tasks
- Implement standard power option pricing
- Implement capped power options
- Support both call and put variants
- Handle various power exponents (n = 2, 3, etc.)
- Implement Greeks calculations
- Add comprehensive tests
- Add documentation with examples
Technical Notes
Standard Power Call: Payoff = max(S^n - K, 0)
Powered Payoff: Payoff = [max(S - K, 0)]^n
For squared power call (n=2), S_T^2 is log-normal with adjusted parameters.
General formula: E[S^n] = S^n * e^(n*(r-q)T + n(n-1)sigma^2T/2)
Considerations: Higher powers increase leverage and risk, Greeks can be very large.
Estimated Effort
Medium (6-8 hours)
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enhancementNew feature or requestNew feature or requestpricingRelated to options pricingRelated to options pricingpriority-lowNice-to-have improvementsNice-to-have improvements