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feat: Implement Power option pricing model #248

@joaquinbejar

Description

@joaquinbejar

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 requestpricingRelated to options pricingpriority-lowNice-to-have improvements

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