Quant Companion MCP

/** * Tests for Black-Scholes pricing and Greeks */ import { describe, it, expect } from "vitest"; import { priceBlackScholes, greeksBlackScholes } from "./blackScholes"; describe("priceBlackScholes", () => { it("prices an ATM call correctly", () => { const result = priceBlackScholes({ spot: 100, strike: 100, rate: 0.05, vol: 0.2, timeToMaturity: 1, optionType: "call", }); // Expected value from standard BS formula ~10.45 expect(result.price).toBeCloseTo(10.45, 1); expect(result.d1).toBeCloseTo(0.35, 1); }); it("prices an OTM put correctly", () => { const result = priceBlackScholes({ spot: 100, strike: 90, rate: 0.05, vol: 0.2, timeToMaturity: 1, optionType: "put", }); // OTM put should be cheaper than ATM expect(result.price).toBeLessThan(5); expect(result.price).toBeGreaterThan(0); }); it("handles dividend yield", () => { const withDiv = priceBlackScholes({ spot: 100, strike: 100, rate: 0.05, vol: 0.2, timeToMaturity: 1, dividendYield: 0.02, optionType: "call", }); const withoutDiv = priceBlackScholes({ spot: 100, strike: 100, rate: 0.05, vol: 0.2, timeToMaturity: 1, optionType: "call", }); // Dividend yield reduces call value expect(withDiv.price).toBeLessThan(withoutDiv.price); }); it("returns intrinsic value at expiry", () => { const result = priceBlackScholes({ spot: 110, strike: 100, rate: 0.05, vol: 0.2, timeToMaturity: 0, optionType: "call", }); expect(result.price).toBe(10); }); it("satisfies put-call parity", () => { const params = { spot: 100, strike: 100, rate: 0.05, vol: 0.2, timeToMaturity: 1, }; const call = priceBlackScholes({ ...params, optionType: "call" }); const put = priceBlackScholes({ ...params, optionType: "put" }); // C - P = S - K*exp(-rT) const lhs = call.price - put.price; const rhs = params.spot - params.strike * Math.exp(-params.rate * params.timeToMaturity); expect(lhs).toBeCloseTo(rhs, 6); }); }); describe("greeksBlackScholes", () => { const baseParams = { spot: 100, strike: 100, rate: 0.05, vol: 0.2, timeToMaturity: 0.5, }; it("computes delta for call", () => { const greeks = greeksBlackScholes({ ...baseParams, optionType: "call" }); // ATM call delta should be around 0.5-0.6 expect(greeks.delta).toBeGreaterThan(0.5); expect(greeks.delta).toBeLessThan(0.7); }); it("computes delta for put", () => { const greeks = greeksBlackScholes({ ...baseParams, optionType: "put" }); // Put delta is negative expect(greeks.delta).toBeLessThan(0); expect(greeks.delta).toBeGreaterThan(-0.5); }); it("gamma is positive for both call and put", () => { const callGreeks = greeksBlackScholes({ ...baseParams, optionType: "call" }); const putGreeks = greeksBlackScholes({ ...baseParams, optionType: "put" }); expect(callGreeks.gamma).toBeGreaterThan(0); expect(putGreeks.gamma).toBeGreaterThan(0); // Gamma is same for call and put expect(callGreeks.gamma).toBeCloseTo(putGreeks.gamma, 6); }); it("theta is negative for long options", () => { const greeks = greeksBlackScholes({ ...baseParams, optionType: "call" }); // Theta should be negative (time decay) expect(greeks.theta).toBeLessThan(0); }); it("vega is positive", () => { const greeks = greeksBlackScholes({ ...baseParams, optionType: "call" }); expect(greeks.vega).toBeGreaterThan(0); }); it("call rho is positive, put rho is negative", () => { const callGreeks = greeksBlackScholes({ ...baseParams, optionType: "call" }); const putGreeks = greeksBlackScholes({ ...baseParams, optionType: "put" }); expect(callGreeks.rho).toBeGreaterThan(0); expect(putGreeks.rho).toBeLessThan(0); }); });