Quant Companion MCP

/** * Tests for Monte Carlo pricing */ import { describe, it, expect } from "vitest"; import { priceOptionMonteCarlo } from "./monteCarlo"; import { priceBlackScholes } from "./blackScholes"; describe("priceOptionMonteCarlo", () => { it("converges to Black-Scholes for European call", () => { const params = { spot: 100, strike: 100, rate: 0.05, vol: 0.2, timeToMaturity: 1, optionType: "call" as const, }; const bsPrice = priceBlackScholes(params).price; const mcResult = priceOptionMonteCarlo({ ...params, paths: 100000 }); // MC should be within ~1% of BS with high path count const tolerance = 0.02 * bsPrice; expect(Math.abs(mcResult.price - bsPrice)).toBeLessThan(tolerance); }); it("converges to Black-Scholes for European put", () => { const params = { spot: 100, strike: 110, rate: 0.05, vol: 0.25, timeToMaturity: 0.5, optionType: "put" as const, }; const bsPrice = priceBlackScholes(params).price; const mcResult = priceOptionMonteCarlo({ ...params, paths: 100000 }); const tolerance = 0.02 * bsPrice; expect(Math.abs(mcResult.price - bsPrice)).toBeLessThan(tolerance); }); it("standard error decreases with more paths", () => { const params = { spot: 100, strike: 100, rate: 0.05, vol: 0.2, timeToMaturity: 1, optionType: "call" as const, }; const result1k = priceOptionMonteCarlo({ ...params, paths: 1000 }); const result100k = priceOptionMonteCarlo({ ...params, paths: 100000 }); // SE should be ~10x smaller with 100x more paths expect(result100k.standardError).toBeLessThan(result1k.standardError); }); it("returns 0 for deeply OTM call at expiry", () => { const result = priceOptionMonteCarlo({ spot: 100, strike: 200, rate: 0.05, vol: 0.2, timeToMaturity: 0, optionType: "call", paths: 1000, }); expect(result.price).toBe(0); }); it("handles dividend yield", () => { const params = { spot: 100, strike: 100, rate: 0.05, vol: 0.2, timeToMaturity: 1, optionType: "call" as const, paths: 50000, }; const withDiv = priceOptionMonteCarlo({ ...params, dividendYield: 0.02 }); const withoutDiv = priceOptionMonteCarlo({ ...params, dividendYield: 0 }); // Dividend yield reduces call price expect(withDiv.price).toBeLessThan(withoutDiv.price); }); });