Quant Companion MCP

/** * Tests for implied volatility solver */ import { describe, it, expect } from "vitest"; import { impliedVol } from "./impliedVol"; import { priceBlackScholes } from "./blackScholes"; describe("impliedVol", () => { it("recovers known volatility", () => { const params = { spot: 100, strike: 100, rate: 0.05, timeToMaturity: 1, optionType: "call" as const, }; const knownVol = 0.25; const price = priceBlackScholes({ ...params, vol: knownVol }).price; const recoveredVol = impliedVol(price, params); expect(recoveredVol).toBeCloseTo(knownVol, 4); }); it("works for OTM options", () => { const params = { spot: 100, strike: 120, rate: 0.05, timeToMaturity: 0.5, optionType: "call" as const, }; const knownVol = 0.3; const price = priceBlackScholes({ ...params, vol: knownVol }).price; const recoveredVol = impliedVol(price, params); expect(recoveredVol).toBeCloseTo(knownVol, 4); }); it("works for ITM puts", () => { const params = { spot: 100, strike: 110, rate: 0.05, timeToMaturity: 0.25, optionType: "put" as const, }; const knownVol = 0.35; const price = priceBlackScholes({ ...params, vol: knownVol }).price; const recoveredVol = impliedVol(price, params); expect(recoveredVol).toBeCloseTo(knownVol, 4); }); it("handles extreme volatilities", () => { const params = { spot: 100, strike: 100, rate: 0.05, timeToMaturity: 1, optionType: "call" as const, }; // High vol const highVol = 1.5; const highPrice = priceBlackScholes({ ...params, vol: highVol }).price; const recoveredHighVol = impliedVol(highPrice, params); expect(recoveredHighVol).toBeCloseTo(highVol, 3); // Low vol const lowVol = 0.05; const lowPrice = priceBlackScholes({ ...params, vol: lowVol }).price; const recoveredLowVol = impliedVol(lowPrice, params); expect(recoveredLowVol).toBeCloseTo(lowVol, 3); }); it("throws for invalid prices", () => { const params = { spot: 100, strike: 100, rate: 0.05, timeToMaturity: 0.5, optionType: "call" as const, }; // Price below intrinsic value expect(() => impliedVol(0.001, params)).toThrow(); }); it("handles dividend yield", () => { const params = { spot: 100, strike: 100, rate: 0.05, timeToMaturity: 1, dividendYield: 0.02, optionType: "call" as const, }; const knownVol = 0.25; const price = priceBlackScholes({ ...params, vol: knownVol }).price; const recoveredVol = impliedVol(price, params); expect(recoveredVol).toBeCloseTo(knownVol, 4); }); });