FinMatLib

Contents

• Overiew
• Class Structure
• Components and Interaction
• Usage

Overview

FinMatLib is a tools library for option pricing and financial modeling. It is designed to model, simulate, and price various financial instruments, specifically options, with an extensible multi-asset framework.

Key Features

• Financial Models: Includes implementations of the Black-Scholes and Multi-Stock models for single and multi-asset pricing.
• Option Pricing: Supports a variety of options including path-independent and knockout options, with both analytic and Monte Carlo pricing methods.
• Portfolio Management: Provides aggregation and pricing of diverse financial instruments in a portfolio.

Design Patterns

The architecture of is influenced by several design patterns:

• Abstract Factory: Used for creating families of related financial models and options without specifying their concrete classes.
• Template Method: Defines the general workflow for pricing and payoff calculations, allowing subclasses to specify particular steps.
• Factory Method: Used for hiding the implementation details, so that the portfolio interface's behavior can be changed without affecting functionality.
• Command: Used to encapsulate pricing tasks as independent commands, enabling multi-threaded execution in the MonteCarloPricer.

Class Structure

UML Object Model

Components and Interaction

• BlackScholesModel: This class models the Black-Scholes framework for a single asset, including the ability to generate price paths under different assumptions, such as real-world and risk-neutral measures.

• MultiStockModel: This class extends the single-asset Black-Scholes model to a multi-asset framework. It handles multiple stocks, their correlations, and allows the generation of simulated price paths across these assets.

• MarketSimulation:This class stores and manages simulations of the market, allowing other components to retrieve stock price histories for different scenarios.

• MonteCarloPricer: This utility class prices options using Monte Carlo simulations, which involve generating a large number of possible price paths and averaging the payoffs.

• Priceable: Interface class to represent different instruments.

• ContinuousTimeOption: An interface that defines the basic structure for all continuous-time options, requiring implementations for methods to retrieve maturity, calculate payoffs, and determine path dependency.

• ContinuousTimeOptionBase: A base class providing common functionality for continuous-time options, including basic price calculations and payoff methods.

• PathIndependentOption: A specialized option class for path-independent options, which are only dependent on the final stock prices at maturity.

• KnockoutOption: A class representing knockout options, which cease to exist if the underlying asset's price reaches a certain barrier level.

• Portfolio: This class represents a collection of financial instruments, allowing for the aggregation and management of multiple Priceable objects.

• PortfolioImpl: A concrete implementation of Portfolio that manages a collection of securities and their corresponding quantities.

Interaction and Workflow

1. Model Setup: The BlackScholesModel or MultiStockModel is initialized with parameters like date, drift, volatility, and correlations.
2. Simulation: MarketSimulation provides an identity-based map for different future stock price scenarios generated by the MultiStockModel class.
3. Option Pricing: PathIndependentOption computes payoffs based solely on the final stock prices at maturity, whereas KnockoutOption considers the entire price path.
4. Portfolio Management: Portfolio aggregates various options, allowing for combined pricing and risk management strategies.
5. Monte Carlo Pricing: The MonteCarloPricer provides a method for estimating the value of options with different payoff methods.

Usage

For using as a shared library:

make static_lib

To compile with static libray:

g++ -o test_lib main.cpp -Llib -lFMLib

For using as a dynamic library:

make shared_lib

To compile with dynamic libray:

g++ -o test_lib main.cpp -Llib -lFMLib -Wl,-rpath=lib