Fix bug on CRR

QuantConnect · Jan 10, 2024 · b7b5276 · b7b5276
1 parent 5c68e17
commit b7b5276
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Showing 2 changed files with 17 additions and 16 deletions.
diff --git a/Indicators/OptionGreekIndicatorsHelper.cs b/Indicators/OptionGreekIndicatorsHelper.cs
@@ -85,7 +85,8 @@ internal static decimal CRRTheoreticalPrice(decimal volatility, decimal spotPric
                 for (int i = 0; i <= period; i++)
                 {
                     var binomialValue = values[i] * probDown + values[i + 1] * probUp;
-                    var exerciseValue = OptionPayoff.GetIntrinsicValue(values[i], strikePrice, optionType);
+                    var nextPrice = spotPrice * Convert.ToDecimal(Math.Pow((double)upFactor, 2 * i - period));
+                    var exerciseValue = OptionPayoff.GetIntrinsicValue(nextPrice, strikePrice, optionType);
                     values[i] = Math.Max(binomialValue, exerciseValue);
                 }
             }

diff --git a/Tests/Indicators/ImpliedVolatilityTests.cs b/Tests/Indicators/ImpliedVolatilityTests.cs
@@ -129,26 +129,26 @@ public override void ComparesAgainstExternalDataAfterReset()
             // Not used
         }
 
-        [TestCase(27.50, 450.0, OptionRight.Call, 60, 0.084)]
-        [TestCase(29.35, 450.0, OptionRight.Put, 60, 0.093)]
-        [TestCase(37.86, 470.0, OptionRight.Call, 60, 0.021)]
-        [TestCase(5.74, 470.0, OptionRight.Put, 60, 0.0)]      // Volatility of deep OTM American put option will not converge in CRR model
-        [TestCase(3.44, 430.0, OptionRight.Call, 60, 0.026)]
-        [TestCase(40.13, 430.0, OptionRight.Put, 60, 0.189)]
-        [TestCase(17.74, 450.0, OptionRight.Call, 180, 0.014)]
-        [TestCase(19.72, 450.0, OptionRight.Put, 180, 0.040)]
-        [TestCase(38.45, 470.0, OptionRight.Call, 180, 0.038)]
-        [TestCase(0.43, 470.0, OptionRight.Put, 180, 0.0)]     // Volatility of deep OTM American put option will not converge in CRR model
-        [TestCase(1.73, 430.0, OptionRight.Call, 180, 0.016)]
-        [TestCase(12.46, 430.0, OptionRight.Put, 180, 0.072)]
+        [TestCase(27.50, 450.0, OptionRight.Call, 60, 0.304)]
+        [TestCase(29.35, 450.0, OptionRight.Put, 60, 0.511)]
+        [TestCase(37.86, 470.0, OptionRight.Call, 60, 0.273)]
+        [TestCase(5.74, 470.0, OptionRight.Put, 60, 0.204)]      // Volatility of deep OTM American put option will not converge in CRR model
+        [TestCase(3.44, 430.0, OptionRight.Call, 60, 0.131)]
+        [TestCase(40.13, 430.0, OptionRight.Put, 60, 0.541)]
+        [TestCase(17.74, 450.0, OptionRight.Call, 180, 0.093)]
+        [TestCase(19.72, 450.0, OptionRight.Put, 180, 0.208)]
+        [TestCase(38.45, 470.0, OptionRight.Call, 180, 0.134)]
+        [TestCase(0.43, 470.0, OptionRight.Put, 180, 0.056)]     // Volatility of deep OTM American put option will not converge in CRR model
+        [TestCase(1.73, 430.0, OptionRight.Call, 180, 0.045)]
+        [TestCase(12.46, 430.0, OptionRight.Put, 180, 0.0)]
         public void ComparesIVOnCRRModel(decimal price, decimal spotPrice, OptionRight right, int expiry, double refIV)
         {
             // Under CRR framework
             var symbol = Symbol.CreateOption("SPY", Market.USA, OptionStyle.American, right, 450m, _reference.AddDays(expiry));
-            var indicator = new ImpliedVolatility(_symbol, 0.04m, optionModel: OptionPricingModelType.BinomialCoxRossRubinstein);
+            var indicator = new ImpliedVolatility(symbol, 0.04m, optionModel: OptionPricingModelType.BinomialCoxRossRubinstein);
 
-            var optionTradeBar = new TradeBar(_reference, _symbol, price, price, price, price, 0m);
-            var spotTradeBar = new TradeBar(_reference, _underlying, spotPrice, spotPrice, spotPrice, spotPrice, 0m);
+            var optionTradeBar = new TradeBar(_reference, symbol, price, price, price, price, 0m);
+            var spotTradeBar = new TradeBar(_reference, symbol.Underlying, spotPrice, spotPrice, spotPrice, spotPrice, 0m);
             indicator.Update(optionTradeBar);
             indicator.Update(spotTradeBar);