net.finmath.fouriermethod.products.EuropeanOption Maven / Gradle / Ivy

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finmath lib is a Mathematical Finance Library in Java. It provides algorithms and methodologies related to mathematical finance.

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/*
 * (c) Copyright Christian P. Fries, Germany. Contact: [email protected].
 *
 * Created on 23.03.2014
 */
package net.finmath.fouriermethod.products;

import org.apache.commons.math3.complex.Complex;

/**
 * Implements valuation of a European option on a single asset.
 *
 * Given a model for an asset S, the European option with strike K, maturity T
 * pays
 * 

 * 	max(S(T) - K , 0) in T
 * 

 *
 * The class implements the characteristic function of the call option
 * payoff, i.e., its Fourier transform.
 *
 * @author Christian Fries
 * @author Alessandro Gnoatto
 * @version 1.0
 */
public class EuropeanOption extends AbstractFourierTransformProduct {

	private final String underlyingName;
	private final double maturity;
	private final double strike;

	public EuropeanOption(final String underlyingName, final double maturity, final double strike) {
		super();
		this.underlyingName = underlyingName;
		this.maturity = maturity;
		this.strike = strike;
	}

	/**
	 * Construct a product representing an European option on an asset S (where S the asset with index 0 from the model - single asset case).
	 * @param maturity The maturity T in the option payoff max(S(T)-K,0)
	 * @param strike The strike K in the option payoff max(S(T)-K,0).
	 */
	public EuropeanOption(final double maturity, final double strike) {
		this(null, maturity, strike);
	}

	@Override
	public Complex apply(final Complex argument) {
		final Complex iargument = argument.multiply(Complex.I);
		final Complex exponent = (iargument).add(1);
		final Complex numerator = (new Complex(strike)).pow(exponent);
		final Complex denominator = (argument.multiply(argument)).subtract(iargument);

		return numerator.divide(denominator).negate();
	}

	@Override
	public double getMaturity() {
		return maturity;
	}

	@Override
	public double getIntegrationDomainImagLowerBound() {
		return 0.5;
	}

	@Override
	public double getIntegrationDomainImagUpperBound() {
		return 2.5;
	}

}