HQu-0.0.0.0: external/src/lets_be_rational.cpp
//
// This source code resides at www.jaeckel.org/LetsBeRational.7z .
//
// ======================================================================================
// Copyright © 2013-2017 Peter Jäckel.
//
// Permission to use, copy, modify, and distribute this software is freely granted,
// provided that this notice is preserved.
//
// WARRANTY DISCLAIMER
// The Software is provided "as is" without warranty of any kind, either express or implied,
// including without limitation any implied warranties of condition, uninterrupted use,
// merchantability, fitness for a particular purpose, or non-infringement.
// ======================================================================================
//
#include "lets_be_rational.h"
// To cross-compile on a command line, you could just use something like
//
// i686-w64-mingw32-g++ -w -fpermissive -shared -DNDEBUG -O3 erf_cody.cpp rationalcubic.cpp normaldistribution.cpp lets_be_rational.cpp xlcall.cpp excel_registration.cpp xlcall32.lib -o lets_be_rational.xll -static-libstdc++ -static-libgcc -s
//
// To compile into a shared library on non-Windows systems, you could try
//
// g++ -fPIC -shared -DNDEBUG -Ofast erf_cody.cpp rationalcubic.cpp normaldistribution.cpp lets_be_rational.cpp -o lets_be_rational.so
//
#if defined(_MSC_VER)
# define NOMINMAX // to suppress MSVC's definitions of min() and max()
// These four pragmas are the equivalent to /fp:fast.
# pragma float_control( except, off )
# pragma float_control( precise, off )
# pragma fp_contract( on )
# pragma fenv_access( off )
#endif
#include "normaldistribution.h"
#include "rationalcubic.h"
#include <float.h>
#include <cmath>
#include <algorithm>
#if defined(_WIN32) || defined(_WIN64)
# include <windows.h>
#endif
#define TWO_PI 6.283185307179586476925286766559005768394338798750
#define SQRT_PI_OVER_TWO 1.253314137315500251207882642405522626503493370305 // sqrt(pi/2) to avoid misinterpretation.
#define SQRT_THREE 1.732050807568877293527446341505872366942805253810
#define SQRT_ONE_OVER_THREE 0.577350269189625764509148780501957455647601751270
#define TWO_PI_OVER_SQRT_TWENTY_SEVEN 1.209199576156145233729385505094770488189377498728 // 2*pi/sqrt(27)
#define PI_OVER_SIX 0.523598775598298873077107230546583814032861566563
namespace {
static const double SQRT_DBL_EPSILON = sqrt(DBL_EPSILON);
static const double FOURTH_ROOT_DBL_EPSILON = sqrt(SQRT_DBL_EPSILON);
static const double EIGHTH_ROOT_DBL_EPSILON = sqrt(FOURTH_ROOT_DBL_EPSILON);
static const double SIXTEENTH_ROOT_DBL_EPSILON = sqrt(EIGHTH_ROOT_DBL_EPSILON);
static const double SQRT_DBL_MIN = sqrt(DBL_MIN);
static const double SQRT_DBL_MAX = sqrt(DBL_MAX);
// Set this to 0 if you want positive results for (positive) denormalised inputs, else to DBL_MIN.
// Note that you cannot achieve full machine accuracy from denormalised inputs!
static const double DENORMALISATION_CUTOFF = 0;
static const double VOLATILITY_VALUE_TO_SIGNAL_PRICE_IS_BELOW_INTRINSIC = -DBL_MAX;
static const double VOLATILITY_VALUE_TO_SIGNAL_PRICE_IS_ABOVE_MAXIMUM = DBL_MAX;
inline bool is_below_horizon(double x){ return fabs(x) < DENORMALISATION_CUTOFF; } // This weeds out denormalised (a.k.a. 'subnormal') numbers.
// See https://www.kernel.org/doc/Documentation/atomic_ops.txt for further details on this simplistic implementation of an atomic flag that is *not* volatile.
typedef struct {
#if defined(_MSC_VER) || defined(_WIN32) || defined(_WIN64)
long data;
#else
int data;
#endif
} atomic_t;
static atomic_t implied_volatility_maximum_iterations = { 2 }; // (DBL_DIG*20)/3 ≈ 100 . Only needed when the iteration effectively alternates Householder/Halley/Newton steps and binary nesting due to roundoff truncation.
#ifdef ENABLE_SWITCHING_THE_OUTPUT_TO_ITERATION_COUNT
static atomic_t implied_volatility_output_type = { 0 };
inline double implied_volatility_output(int count, double volatility){ return implied_volatility_output_type.data>0 ? count : volatility; }
#else
inline double implied_volatility_output(int count, double volatility){ return volatility; }
#endif
#ifdef ENABLE_CHANGING_THE_HOUSEHOLDER_METHOD_ORDER
static atomic_t implied_volatility_householder_method_order = { 4 };
inline double householder_factor(double newton, double halley, double hh3){
return implied_volatility_householder_method_order.data > 3 ? (1+0.5*halley*newton)/(1+newton*(halley+hh3*newton/6)) : ( implied_volatility_householder_method_order.data > 2 ? 1/(1+0.5*halley*newton) : 1 );
}
#else
inline double householder_factor(double newton, double halley, double hh3){ return (1+0.5*halley*newton)/(1+newton*(halley+hh3*newton/6)); }
#endif
}
EXPORT_EXTERN_C double set_implied_volatility_maximum_iterations(double t){
int i = (int)t;
if (i>=0) {
#if defined(_MSC_VER) || defined(_WIN32) || defined(_WIN64)
InterlockedExchange(&(implied_volatility_maximum_iterations.data),i);
#elif defined( __x86__ ) || defined( __x86_64__ )
implied_volatility_maximum_iterations.data = i;
#else
# error Atomic operations not implemented for this platform.
#endif
}
return implied_volatility_maximum_iterations.data;
}
#ifdef ENABLE_SWITCHING_THE_OUTPUT_TO_ITERATION_COUNT
EXPORT_EXTERN_C double set_implied_volatility_output_type(double t){
int i = (int)t;
#if defined(_MSC_VER) || defined(_WIN32) || defined(_WIN64)
InterlockedExchange(&(implied_volatility_output_type.data),i);
#elif defined( __x86__ ) || defined( __x86_64__ )
implied_volatility_output_type.data = i;
#else
# error Atomic operations not implemented for this platform.
#endif
return implied_volatility_output_type.data;
}
#endif
#ifdef ENABLE_CHANGING_THE_HOUSEHOLDER_METHOD_ORDER
EXPORT_EXTERN_C double set_implied_volatility_householder_method_order(double t){
int i = (int)t;
if (i>=0) {
#if defined(_MSC_VER) || defined(_WIN32) || defined(_WIN64)
InterlockedExchange(&(implied_volatility_householder_method_order.data),i);
#elif defined( __x86__ ) || defined( __x86_64__ )
implied_volatility_householder_method_order.data = i;
#else
# error Atomic operations not implemented for this platform.
#endif
}
return implied_volatility_householder_method_order.data;
}
#endif
double normalised_intrinsic(double x, double q /* q=±1 */){
if (q*x<=0)
return 0;
const double x2=x*x;
if (x2<98*FOURTH_ROOT_DBL_EPSILON ) // The factor 98 is computed from last coefficient: √√92897280 = 98.1749
return fabs( std::max( (q<0?-1:1)*x*(1+x2*((1.0/24.0)+x2*((1.0/1920.0)+x2*((1.0/322560.0)+(1.0/92897280.0)*x2)))) , 0.0 ) );
const double b_max = exp(0.5*x), one_over_b_max = 1 / b_max;
return fabs(std::max((q<0?-1:1)*(b_max-one_over_b_max),0.));
}
double normalised_intrinsic_call(double x){ return normalised_intrinsic(x,1); }
// Asymptotic expansion of
//
// b = Φ(h+t)·exp(x/2) - Φ(h-t)·exp(-x/2)
// with
// h = x/s and t = s/2
// which makes
// b = Φ(h+t)·exp(h·t) - Φ(h-t)·exp(-h·t)
//
// exp(-(h²+t²)/2)
// = --------------- · [ Y(h+t) - Y(h-t) ]
// √(2π)
// with
// Y(z) := Φ(z)/φ(z)
//
// for large negative (t-|h|) by the aid of Abramowitz & Stegun (26.2.12) where Φ(z) = φ(z)/|z|·[1-1/z^2+...].
// We define
// r
// A(h,t) := --- · [ Y(h+t) - Y(h-t) ]
// t
//
// with r := (h+t)·(h-t) and give an expansion for A(h,t) in q:=(h/r)² expressed in terms of e:=(t/h)² .
double asymptotic_expansion_of_normalised_black_call(double h, double t){
const double e=(t/h)*(t/h), r=((h+t)*(h-t)), q=(h/r)*(h/r);
// 17th order asymptotic expansion of A(h,t) in q, sufficient for Φ(h) [and thus y(h)] to have relative accuracy of 1.64E-16 for h <= η with η:=-10.
const double asymptotic_expansion_sum = (2.0+q*(-6.0E0-2.0*e+3.0*q*(1.0E1+e*(2.0E1+2.0*e)+5.0*q*(-1.4E1+e*(-7.0E1+e*(-4.2E1-2.0*e))+7.0*q*(1.8E1+e*(1.68E2+e*(2.52E2+e*(7.2E1+2.0*e)))+9.0*q*(-2.2E1+e*(-3.3E2+e*(-9.24E2+e*(-6.6E2+e*(-1.1E2-2.0*e))))+1.1E1*q*(2.6E1+e*(5.72E2+e*(2.574E3+e*(3.432E3+e*(1.43E3+e*(1.56E2+2.0*e)))))+1.3E1*q*(-3.0E1+e*(-9.1E2+e*(-6.006E3+e*(-1.287E4+e*(-1.001E4+e*(-2.73E3+e*(-2.1E2-2.0*e))))))+1.5E1*q*(3.4E1+e*(1.36E3+e*(1.2376E4+e*(3.8896E4+e*(4.862E4+e*(2.4752E4+e*(4.76E3+e*(2.72E2+2.0*e)))))))+1.7E1*q*(-3.8E1+e*(-1.938E3+e*(-2.3256E4+e*(-1.00776E5+e*(-1.84756E5+e*(-1.51164E5+e*(-5.4264E4+e*(-7.752E3+e*(-3.42E2-2.0*e))))))))+1.9E1*q*(4.2E1+e*(2.66E3+e*(4.0698E4+e*(2.3256E5+e*(5.8786E5+e*(7.05432E5+e*(4.0698E5+e*(1.08528E5+e*(1.197E4+e*(4.2E2+2.0*e)))))))))+2.1E1*q*(-4.6E1+e*(-3.542E3+e*(-6.7298E4+e*(-4.90314E5+e*(-1.63438E6+e*(-2.704156E6+e*(-2.288132E6+e*(-9.80628E5+e*(-2.01894E5+e*(-1.771E4+e*(-5.06E2-2.0*e))))))))))+2.3E1*q*(5.0E1+e*(4.6E3+e*(1.0626E5+e*(9.614E5+e*(4.08595E6+e*(8.9148E6+e*(1.04006E7+e*(6.53752E6+e*(2.16315E6+e*(3.542E5+e*(2.53E4+e*(6.0E2+2.0*e)))))))))))+2.5E1*q*(-5.4E1+e*(-5.85E3+e*(-1.6146E5+e*(-1.77606E6+e*(-9.37365E6+e*(-2.607579E7+e*(-4.01166E7+e*(-3.476772E7+e*(-1.687257E7+e*(-4.44015E6+e*(-5.9202E5+e*(-3.51E4+e*(-7.02E2-2.0*e))))))))))))+2.7E1*q*(5.8E1+e*(7.308E3+e*(2.3751E5+e*(3.12156E6+e*(2.003001E7+e*(6.919458E7+e*(1.3572783E8+e*(1.5511752E8+e*(1.0379187E8+e*(4.006002E7+e*(8.58429E6+e*(9.5004E5+e*(4.7502E4+e*(8.12E2+2.0*e)))))))))))))+2.9E1*q*(-6.2E1+e*(-8.99E3+e*(-3.39822E5+e*(-5.25915E6+e*(-4.032015E7+e*(-1.6934463E8+e*(-4.1250615E8+e*(-6.0108039E8+e*(-5.3036505E8+e*(-2.8224105E8+e*(-8.870433E7+e*(-1.577745E7+e*(-1.472562E6+e*(-6.293E4+e*(-9.3E2-2.0*e))))))))))))))+3.1E1*q*(6.6E1+e*(1.0912E4+e*(4.74672E5+e*(8.544096E6+e*(7.71342E7+e*(3.8707344E8+e*(1.14633288E9+e*(2.07431664E9+e*(2.33360622E9+e*(1.6376184E9+e*(7.0963464E8+e*(1.8512208E8+e*(2.7768312E7+e*(2.215136E6+e*(8.184E4+e*(1.056E3+2.0*e)))))))))))))))+3.3E1*(-7.0E1+e*(-1.309E4+e*(-6.49264E5+e*(-1.344904E7+e*(-1.4121492E8+e*(-8.344518E8+e*(-2.9526756E9+e*(-6.49588632E9+e*(-9.0751353E9+e*(-8.1198579E9+e*(-4.6399188E9+e*(-1.6689036E9+e*(-3.67158792E8+e*(-4.707164E7+e*(-3.24632E6+e*(-1.0472E5+e*(-1.19E3-2.0*e)))))))))))))))))*q)))))))))))))))));
const double b = ONE_OVER_SQRT_TWO_PI*exp((-0.5*(h*h+t*t)))*(t/r)*asymptotic_expansion_sum;
return fabs(std::max(b , 0.));
}
namespace { /* η */ static const double asymptotic_expansion_accuracy_threshold = -10; }
double normalised_black_call_using_erfcx(double h, double t) {
// Given h = x/s and t = s/2, the normalised Black function can be written as
//
// b(x,s) = Φ(x/s+s/2)·exp(x/2) - Φ(x/s-s/2)·exp(-x/2)
// = Φ(h+t)·exp(h·t) - Φ(h-t)·exp(-h·t) . (*)
//
// It is mentioned in section 4 (and discussion of figures 2 and 3) of George Marsaglia's article "Evaluating the
// Normal Distribution" (available at http://www.jstatsoft.org/v11/a05/paper) that the error of any cumulative normal
// function Φ(z) is dominated by the hardware (or compiler implementation) accuracy of exp(-z²/2) which is not
// reliably more than 14 digits when z is large. The accuracy of Φ(z) typically starts coming down to 14 digits when
// z is around -8. For the (normalised) Black function, as above in (*), this means that we are subtracting two terms
// that are each products of terms with about 14 digits of accuracy. The net result, in each of the products, is even
// less accuracy, and then we are taking the difference of these terms, resulting in even less accuracy. When we are
// using the asymptotic expansion asymptotic_expansion_of_normalised_black_call() invoked in the second branch at the
// beginning of this function, we are using only *one* exponential instead of 4, and this improves accuracy. It
// actually improves it a bit more than you would expect from the above logic, namely, almost the full two missing
// digits (in 64 bit IEEE floating point). Unfortunately, going higher order in the asymptotic expansion will not
// enable us to gain more accuracy (by extending the range in which we could use the expansion) since the asymptotic
// expansion, being a divergent series, can never gain 16 digits of accuracy for z=-8 or just below. The best you can
// get is about 15 digits (just), for about 35 terms in the series (26.2.12), which would result in an prohibitively
// long expression in function asymptotic expansion asymptotic_expansion_of_normalised_black_call(). In this last branch,
// here, we therefore take a different tack as follows.
// The "scaled complementary error function" is defined as erfcx(z) = exp(z²)·erfc(z). Cody's implementation of this
// function as published in "Rational Chebyshev approximations for the error function", W. J. Cody, Math. Comp., 1969, pp.
// 631-638, uses rational functions that theoretically approximates erfcx(x) to at least 18 significant decimal digits,
// *without* the use of the exponential function when x>4, which translates to about z<-5.66 in Φ(z). To make use of it,
// we write
// Φ(z) = exp(-z²/2)·erfcx(-z/√2)/2
//
// to transform the normalised black function to
//
// b = ½ · exp(-½(h²+t²)) · [ erfcx(-(h+t)/√2) - erfcx(-(h-t)/√2) ]
//
// which now involves only one exponential, instead of three, when |h|+|t| > 5.66 , and the difference inside the
// square bracket is between the evaluation of two rational functions, which, typically, according to Marsaglia,
// retains the full 16 digits of accuracy (or just a little less than that).
//
const double b = 0.5 * exp(-0.5*(h*h+t*t)) * ( erfcx_cody(-ONE_OVER_SQRT_TWO*(h+t)) - erfcx_cody(-ONE_OVER_SQRT_TWO*(h-t)) );
return fabs(std::max(b,0.0));
}
// Calculation of
//
// b = Φ(h+t)·exp(h·t) - Φ(h-t)·exp(-h·t)
//
// exp(-(h²+t²)/2)
// = --------------- · [ Y(h+t) - Y(h-t) ]
// √(2π)
// with
// Y(z) := Φ(z)/φ(z)
//
// using an expansion of Y(h+t)-Y(h-t) for small t to twelvth order in t.
// Theoretically accurate to (better than) precision ε = 2.23E-16 when h<=0 and t < τ with τ := 2·ε^(1/16) ≈ 0.21.
// The main bottleneck for precision is the coefficient a:=1+h·Y(h) when |h|>1 .
double small_t_expansion_of_normalised_black_call(double h, double t){
// Y(h) := Φ(h)/φ(h) = √(π/2)·erfcx(-h/√2)
// a := 1+h·Y(h) --- Note that due to h<0, and h·Y(h) -> -1 (from above) as h -> -∞, we also have that a>0 and a -> 0 as h -> -∞
// w := t² , h2 := h²
const double a = 1+h*(0.5*SQRT_TWO_PI)*erfcx_cody(-ONE_OVER_SQRT_TWO*h), w=t*t, h2=h*h;
const double expansion = 2*t*(a+w*((-1+3*a+a*h2)/6+w*((-7+15*a+h2*(-1+10*a+a*h2))/120+w*((-57+105*a+h2*(-18+105*a+h2*(-1+21*a+a*h2)))/5040+w*((-561+945*a+h2*(-285+1260*a+h2*(-33+378*a+h2*(-1+36*a+a*h2))))/362880+w*((-6555+10395*a+h2*(-4680+17325*a+h2*(-840+6930*a+h2*(-52+990*a+h2*(-1+55*a+a*h2)))))/39916800+((-89055+135135*a+h2*(-82845+270270*a+h2*(-20370+135135*a+h2*(-1926+25740*a+h2*(-75+2145*a+h2*(-1+78*a+a*h2))))))*w)/6227020800.0))))));
const double b = ONE_OVER_SQRT_TWO_PI*exp((-0.5*(h*h+t*t)))*expansion;
return fabs(std::max(b,0.0));
}
namespace { /* τ */ static const double small_t_expansion_of_normalised_black_threshold = 2*SIXTEENTH_ROOT_DBL_EPSILON; }
// b(x,s) = Φ(x/s+s/2)·exp(x/2) - Φ(x/s-s/2)·exp(-x/2)
// = Φ(h+t)·exp(x/2) - Φ(h-t)·exp(-x/2)
// with
// h = x/s and t = s/2
double normalised_black_call_using_norm_cdf(double x, double s){
const double h = x/s, t = 0.5*s, b_max = exp(0.5*x), b = norm_cdf(h + t) * b_max - norm_cdf(h - t) / b_max;
return fabs(std::max(b,0.0));
}
//
// Introduced on 2017-02-18
//
// b(x,s) = Φ(x/s+s/2)·exp(x/2) - Φ(x/s-s/2)·exp(-x/2)
// = Φ(h+t)·exp(x/2) - Φ(h-t)·exp(-x/2)
// = ½ · exp(-u²-v²) · [ erfcx(u-v) - erfcx(u+v) ]
// = ½ · [ exp(x/2)·erfc(u-v) - exp(-x/2)·erfc(u+v) ]
// = ½ · [ exp(x/2)·erfc(u-v) - exp(-u²-v²)·erfcx(u+v) ]
// = ½ · [ exp(-u²-v²)·erfcx(u-v) - exp(-x/2)·erfc(u+v) ]
// with
// h = x/s , t = s/2 ,
// and
// u = -h/√2 and v = t/√2 .
//
// Cody's erfc() and erfcx() functions each, for some values of their argument, involve the evaluation
// of the exponential function exp(). The normalised Black function requires additional evaluation(s)
// of the exponential function irrespective of which of the above formulations is used. However, the total
// number of exponential function evaluations can be minimised by a judicious choice of one of the above
// formulations depending on the input values and the branch logic in Cody's erfc() and erfcx().
//
double normalised_black_call_with_optimal_use_of_codys_functions(double x, double s){
const double codys_threshold = 0.46875, h = x/s, t = 0.5*s, q1 = -ONE_OVER_SQRT_TWO*(h+t), q2 = -ONE_OVER_SQRT_TWO*(h-t);
double two_b;
if ( q1 < codys_threshold )
if ( q2 < codys_threshold )
two_b = exp(0.5*x)*erfc_cody(q1) - exp(-0.5*x)*erfc_cody(q2);
else
two_b = exp(0.5*x)*erfc_cody(q1) - exp(-0.5*(h*h+t*t))*erfcx_cody(q2);
else
if ( q2 < codys_threshold )
two_b = exp(-0.5*(h*h+t*t))*erfcx_cody(q1) - exp(-0.5*x)*erfc_cody(q2);
else
two_b = exp(-0.5*(h*h+t*t)) * ( erfcx_cody(q1) - erfcx_cody(q2) );
return fabs(std::max(0.5*two_b,0.0));
}
EXPORT_EXTERN_C double normalised_black_call(double x, double s) {
if (x>0)
return normalised_intrinsic_call(x)+normalised_black_call(-x,s); // In the money.
if (s<=fabs(x)*DENORMALISATION_CUTOFF)
return normalised_intrinsic_call(x); // sigma=0 -> intrinsic value.
// Denote h := x/s and t := s/2.
// We evaluate the condition |h|>|η|, i.e., h<η && t < τ+|h|-|η| avoiding any divisions by s , where η = asymptotic_expansion_accuracy_threshold and τ = small_t_expansion_of_normalised_black_threshold .
if ( x < s*asymptotic_expansion_accuracy_threshold && 0.5*s*s+x < s*(small_t_expansion_of_normalised_black_threshold+asymptotic_expansion_accuracy_threshold) )
return asymptotic_expansion_of_normalised_black_call(x/s,0.5*s);
if ( 0.5*s < small_t_expansion_of_normalised_black_threshold )
return small_t_expansion_of_normalised_black_call(x/s,0.5*s);
#ifdef DO_NOT_OPTIMISE_NORMALISED_BLACK_IN_REGIONS_3_AND_4_FOR_CODYS_FUNCTIONS
// When b is more than, say, about 85% of b_max=exp(x/2), then b is dominated by the first of the two terms in the Black formula, and we retain more accuracy by not attempting to combine the two terms in any way.
// We evaluate the condition h+t>0.85 avoiding any divisions by s.
if ( x+0.5*s*s > s*0.85 )
return normalised_black_call_using_norm_cdf(x,s);
return normalised_black_call_using_erfcx(x/s,0.5*s);
#else
return normalised_black_call_with_optimal_use_of_codys_functions(x,s);
#endif
}
inline double square(double x){ return x*x; }
EXPORT_EXTERN_C double normalised_vega(double x, double s) {
const double ax = fabs(x);
return (ax<=0) ? ONE_OVER_SQRT_TWO_PI*exp(-0.125*s*s) : ( (s<=0 || s<=ax*SQRT_DBL_MIN) ? 0 : ONE_OVER_SQRT_TWO_PI*exp(-0.5*(square(x/s)+square(0.5*s))) );
}
EXPORT_EXTERN_C double normalised_black(double x, double s, double q /* q=±1 */) { return normalised_black_call(q<0?-x:x,s); /* Reciprocal-strike call-put equivalence */ }
EXPORT_EXTERN_C double black(double F, double K, double sigma, double T, double q /* q=±1 */) {
const double intrinsic = fabs(std::max((q<0?K-F:F-K),0.0));
// Map in-the-money to out-of-the-money
if (q*(F-K)>0)
return intrinsic + black(F,K,sigma,T,-q);
return std::max(intrinsic,(sqrt(F)*sqrt(K))*normalised_black(log(F/K),sigma*sqrt(T),q));
}
#ifdef COMPUTE_LOWER_MAP_DERIVATIVES_INDIVIDUALLY
double f_lower_map(const double x,const double s){
if (is_below_horizon(x))
return 0;
if (is_below_horizon(s))
return 0;
const double z=SQRT_ONE_OVER_THREE*fabs(x)/s, Phi=norm_cdf(-z);
return TWO_PI_OVER_SQRT_TWENTY_SEVEN*fabs(x)*(Phi*Phi*Phi);
}
double d_f_lower_map_d_beta(const double x,const double s){
if (is_below_horizon(s))
return 1;
const double z=SQRT_ONE_OVER_THREE*fabs(x)/s, y = z*z, Phi=norm_cdf(-z);
return TWO_PI*y*(Phi*Phi) * exp(y+0.125*s*s);
}
double d2_f_lower_map_d_beta2(const double x,const double s){
const double ax=fabs(x), z=SQRT_ONE_OVER_THREE*ax/s, y = z*z, s2=s*s, Phi=norm_cdf(-z), phi=norm_pdf(z);
return PI_OVER_SIX * y/(s2*s) * Phi * ( 8*SQRT_THREE*s*ax + (3*s2*(s2-8)-8*x*x)*Phi/phi ) * exp(2*y+0.25*s2);
}
void compute_f_lower_map_and_first_two_derivatives(const double x,const double s,double &f,double &fp,double &fpp){
f = f_lower_map(x,s);
fp = d_f_lower_map_d_beta(x,s);
fpp = d2_f_lower_map_d_beta2(x,s);
}
#else
void compute_f_lower_map_and_first_two_derivatives(const double x,const double s,double &f,double &fp,double &fpp){
const double ax=fabs(x), z=SQRT_ONE_OVER_THREE*ax/s, y = z*z, s2=s*s, Phi=norm_cdf(-z), phi=norm_pdf(z);
fpp = PI_OVER_SIX * y/(s2*s) * Phi * ( 8*SQRT_THREE*s*ax + (3*s2*(s2-8)-8*x*x)*Phi/phi ) * exp(2*y+0.25*s2);
if (is_below_horizon(s)) {
fp = 1;
f = 0;
} else {
const double Phi2=Phi*Phi;
fp = TWO_PI*y*Phi2*exp(y+0.125*s*s);
if (is_below_horizon(x))
f = 0;
else
f = TWO_PI_OVER_SQRT_TWENTY_SEVEN*ax*(Phi2*Phi);
}
}
#endif
double inverse_f_lower_map(const double x,const double f){
return is_below_horizon(f) ? 0 : fabs(x/(SQRT_THREE*inverse_norm_cdf( std::pow( f/(TWO_PI_OVER_SQRT_TWENTY_SEVEN*fabs(x)) , 1./3.) )));
}
#ifdef COMPUTE_UPPER_MAP_DERIVATIVES_INDIVIDUALLY
double f_upper_map(const double s){
return norm_cdf(-0.5*s);
}
double d_f_upper_map_d_beta(const double x,const double s){
return is_below_horizon(x) ? -0.5 : -0.5*exp(0.5*square(x/s));
}
double d2_f_upper_map_d_beta2(const double x,const double s){
if (is_below_horizon(x))
return 0;
const double w = square(x/s);
return SQRT_PI_OVER_TWO*exp(w+0.125*s*s)*w/s;
}
void compute_f_upper_map_and_first_two_derivatives(const double x,const double s,double &f,double &fp,double &fpp){
f = f_upper_map(s);
fp = d_f_upper_map_d_beta(x,s);
fpp = d2_f_upper_map_d_beta2(x,s);
}
#else
void compute_f_upper_map_and_first_two_derivatives(const double x,const double s,double &f,double &fp,double &fpp){
f = norm_cdf(-0.5*s);
if (is_below_horizon(x)) {
fp = -0.5;
fpp = 0;
} else {
const double w = square(x/s);
fp = -0.5*exp(0.5*w);
fpp = SQRT_PI_OVER_TWO*exp(w+0.125*s*s)*w/s;
}
}
#endif
double inverse_f_upper_map(double f){
return -2.*inverse_norm_cdf(f);
}
// See http://en.wikipedia.org/wiki/Householder%27s_method for a detailed explanation of the third order Householder iteration.
//
// Given the objective function g(s) whose root x such that 0 = g(s) we seek, iterate
//
// s_n+1 = s_n - (g/g') · [ 1 - (g''/g')·(g/g') ] / [ 1 - (g/g')·( (g''/g') - (g'''/g')·(g/g')/6 ) ]
//
// Denoting newton:=-(g/g'), halley:=(g''/g'), and hh3:=(g'''/g'), this reads
//
// s_n+1 = s_n + newton · [ 1 + halley·newton/2 ] / [ 1 + newton·( halley + hh3·newton/6 ) ]
//
//
// NOTE that this function returns 0 when beta<intrinsic without any safety checks.
//
double unchecked_normalised_implied_volatility_from_a_transformed_rational_guess_with_limited_iterations(double beta, double x, double q /* q=±1 */, int N){
// Subtract intrinsic.
if (q*x>0) {
beta = fabs(std::max(beta-normalised_intrinsic(x, q),0.));
q = -q;
}
// Map puts to calls
if (q<0){
x = -x;
q = -q;
}
if (beta<=0) // For negative or zero prices we return 0.
return implied_volatility_output(0,0);
if (beta<DENORMALISATION_CUTOFF) // For positive but denormalised (a.k.a. 'subnormal') prices, we return 0 since it would be impossible to converge to full machine accuracy anyway.
return implied_volatility_output(0,0);
const double b_max = exp(0.5*x);
if (beta>=b_max)
return implied_volatility_output(0,VOLATILITY_VALUE_TO_SIGNAL_PRICE_IS_ABOVE_MAXIMUM);
int iterations=0, direction_reversal_count = 0;
double f=-DBL_MAX, s=-DBL_MAX, ds=s, ds_previous=0, s_left=DBL_MIN, s_right=DBL_MAX;
// The temptation is great to use the optimised form b_c = exp(x/2)/2-exp(-x/2)·Phi(sqrt(-2·x)) but that would require implementing all of the above types of round-off and over/underflow handling for this expression, too.
const double s_c=sqrt(fabs(2*x)), b_c = normalised_black_call(x,s_c), v_c = normalised_vega(x, s_c);
// Four branches.
if ( beta<b_c ) {
const double s_l = s_c - b_c/v_c, b_l = normalised_black_call(x,s_l);
if (beta<b_l){
double f_lower_map_l, d_f_lower_map_l_d_beta, d2_f_lower_map_l_d_beta2;
compute_f_lower_map_and_first_two_derivatives(x,s_l,f_lower_map_l,d_f_lower_map_l_d_beta,d2_f_lower_map_l_d_beta2);
const double r_ll=convex_rational_cubic_control_parameter_to_fit_second_derivative_at_right_side(0.,b_l,0.,f_lower_map_l,1.,d_f_lower_map_l_d_beta,d2_f_lower_map_l_d_beta2,true);
f = rational_cubic_interpolation(beta,0.,b_l,0.,f_lower_map_l,1.,d_f_lower_map_l_d_beta,r_ll);
if (!(f>0)) { // This can happen due to roundoff truncation for extreme values such as |x|>500.
// We switch to quadratic interpolation using f(0)≡0, f(b_l), and f'(0)≡1 to specify the quadratic.
const double t = beta/b_l;
f = (f_lower_map_l*t + b_l*(1-t)) * t;
}
s = inverse_f_lower_map(x,f);
s_right = s_l;
//
// In this branch, which comprises the lowest segment, the objective function is
// g(s) = 1/ln(b(x,s)) - 1/ln(beta)
// ≡ 1/ln(b(s)) - 1/ln(beta)
// This makes
// g' = -b'/(b·ln(b)²)
// newton = -g/g' = (ln(beta)-ln(b))·ln(b)/ln(beta)·b/b'
// halley = g''/g' = b''/b' - b'/b·(1+2/ln(b))
// hh3 = g'''/g' = b'''/b' + 2(b'/b)²·(1+3/ln(b)·(1+1/ln(b))) - 3(b''/b)·(1+2/ln(b))
//
// The Householder(3) iteration is
// s_n+1 = s_n + newton · [ 1 + halley·newton/2 ] / [ 1 + newton·( halley + hh3·newton/6 ) ]
//
for (; iterations<N && fabs(ds)>DBL_EPSILON*s; ++iterations){
if (ds*ds_previous<0)
++direction_reversal_count;
if ( iterations>0 && ( 3==direction_reversal_count || !(s>s_left && s<s_right) ) ) {
// If looping inefficently, or the forecast step takes us outside the bracket, or onto its edges, switch to binary nesting.
// NOTE that this can only really happen for very extreme values of |x|, such as |x| = |ln(F/K)| > 500.
s = 0.5*(s_left+s_right);
if (s_right-s_left<=DBL_EPSILON*s) break;
direction_reversal_count = 0;
ds = 0;
}
ds_previous=ds;
const double b = normalised_black_call(x,s), bp = normalised_vega(x, s);
if ( b>beta && s<s_right ) s_right=s; else if ( b<beta && s>s_left ) s_left=s; // Tighten the bracket if applicable.
if (b<=0||bp<=0) // Numerical underflow. Switch to binary nesting for this iteration.
ds = 0.5*(s_left+s_right)-s;
else {
const double ln_b=log(b), ln_beta=log(beta), bpob=bp/b, h=x/s, b_halley = h*h/s-s/4, newton = (ln_beta-ln_b)*ln_b/ln_beta/bpob, halley = b_halley-bpob*(1+2/ln_b);
const double b_hh3 = b_halley*b_halley-3*square(h/s)-0.25, hh3 = b_hh3+2*square(bpob)*(1+3/ln_b*(1+1/ln_b))-3*b_halley*bpob*(1+2/ln_b);
ds = newton * householder_factor(newton,halley,hh3);
}
s += ds = std::max(-0.5*s , ds );
}
return implied_volatility_output(iterations,s);
} else {
const double v_l = normalised_vega(x, s_l), r_lm = convex_rational_cubic_control_parameter_to_fit_second_derivative_at_right_side(b_l,b_c,s_l,s_c,1/v_l,1/v_c,0.0,false);
s = rational_cubic_interpolation(beta,b_l,b_c,s_l,s_c,1/v_l,1/v_c,r_lm);
s_left = s_l;
s_right = s_c;
}
} else {
const double s_h = v_c>DBL_MIN ? s_c+(b_max-b_c)/v_c : s_c, b_h = normalised_black_call(x,s_h);
if(beta<=b_h){
const double v_h = normalised_vega(x, s_h), r_hm = convex_rational_cubic_control_parameter_to_fit_second_derivative_at_left_side(b_c,b_h,s_c,s_h,1/v_c,1/v_h,0.0,false);
s = rational_cubic_interpolation(beta,b_c,b_h,s_c,s_h,1/v_c,1/v_h,r_hm);
s_left = s_c;
s_right = s_h;
} else {
double f_upper_map_h, d_f_upper_map_h_d_beta, d2_f_upper_map_h_d_beta2;
compute_f_upper_map_and_first_two_derivatives(x,s_h,f_upper_map_h,d_f_upper_map_h_d_beta,d2_f_upper_map_h_d_beta2);
if ( d2_f_upper_map_h_d_beta2>-SQRT_DBL_MAX && d2_f_upper_map_h_d_beta2<SQRT_DBL_MAX ){
const double r_hh = convex_rational_cubic_control_parameter_to_fit_second_derivative_at_left_side(b_h,b_max,f_upper_map_h,0.,d_f_upper_map_h_d_beta,-0.5,d2_f_upper_map_h_d_beta2,true);
f = rational_cubic_interpolation(beta,b_h,b_max,f_upper_map_h,0.,d_f_upper_map_h_d_beta,-0.5,r_hh);
}
if (f<=0) {
const double h=b_max-b_h, t=(beta-b_h)/h;
f = (f_upper_map_h*(1-t) + 0.5*h*t) * (1-t); // We switch to quadratic interpolation using f(b_h), f(b_max)≡0, and f'(b_max)≡-1/2 to specify the quadratic.
}
s = inverse_f_upper_map(f);
s_left = s_h;
if (beta>0.5*b_max) { // Else we better drop through and let the objective function be g(s) = b(x,s)-beta.
//
// In this branch, which comprises the upper segment, the objective function is
// g(s) = ln(b_max-beta)-ln(b_max-b(x,s))
// ≡ ln((b_max-beta)/(b_max-b(s)))
// This makes
// g' = b'/(b_max-b)
// newton = -g/g' = ln((b_max-b)/(b_max-beta))·(b_max-b)/b'
// halley = g''/g' = b''/b' + b'/(b_max-b)
// hh3 = g'''/g' = b'''/b' + g'·(2g'+3b''/b')
// and the iteration is
// s_n+1 = s_n + newton · [ 1 + halley·newton/2 ] / [ 1 + newton·( halley + hh3·newton/6 ) ].
//
for (; iterations<N && fabs(ds)>DBL_EPSILON*s; ++iterations){
if (ds*ds_previous<0)
++direction_reversal_count;
if ( iterations>0 && ( 3==direction_reversal_count || !(s>s_left && s<s_right) ) ) {
// If looping inefficently, or the forecast step takes us outside the bracket, or onto its edges, switch to binary nesting.
// NOTE that this can only really happen for very extreme values of |x|, such as |x| = |ln(F/K)| > 500.
s = 0.5*(s_left+s_right);
if (s_right-s_left<=DBL_EPSILON*s) break;
direction_reversal_count = 0;
ds = 0;
}
ds_previous=ds;
const double b = normalised_black_call(x,s), bp = normalised_vega(x, s);
if ( b>beta && s<s_right ) s_right=s; else if ( b<beta && s>s_left ) s_left=s; // Tighten the bracket if applicable.
if (b>=b_max||bp<=DBL_MIN) // Numerical underflow. Switch to binary nesting for this iteration.
ds = 0.5*(s_left+s_right)-s;
else {
const double b_max_minus_b = b_max-b, g = log((b_max-beta)/b_max_minus_b), gp = bp/b_max_minus_b;
const double b_halley = square(x/s)/s-s/4, b_hh3 = b_halley*b_halley-3*square(x/(s*s))-0.25;
const double newton = -g/gp, halley = b_halley+gp, hh3 = b_hh3+gp*(2*gp+3*b_halley);
ds = newton * householder_factor(newton,halley,hh3);
}
s += ds = std::max(-0.5*s , ds );
}
return implied_volatility_output(iterations,s);
}
}
}
// In this branch, which comprises the two middle segments, the objective function is g(s) = b(x,s)-beta, or g(s) = b(s) - beta, for short.
// This makes
// newton = -g/g' = -(b-beta)/b'
// halley = g''/g' = b''/b' = x²/s³-s/4
// hh3 = g'''/g' = b'''/b' = halley² - 3·(x/s²)² - 1/4
// and the iteration is
// s_n+1 = s_n + newton · [ 1 + halley·newton/2 ] / [ 1 + newton·( halley + hh3·newton/6 ) ].
//
for (; iterations<N && fabs(ds)>DBL_EPSILON*s; ++iterations){
if (ds*ds_previous<0)
++direction_reversal_count;
if ( iterations>0 && ( 3==direction_reversal_count || !(s>s_left && s<s_right) ) ) {
// If looping inefficently, or the forecast step takes us outside the bracket, or onto its edges, switch to binary nesting.
// NOTE that this can only really happen for very extreme values of |x|, such as |x| = |ln(F/K)| > 500.
s = 0.5*(s_left+s_right);
if (s_right-s_left<=DBL_EPSILON*s) break;
direction_reversal_count = 0;
ds = 0;
}
ds_previous=ds;
const double b = normalised_black_call(x,s), bp = normalised_vega(x, s);
if ( b>beta && s<s_right ) s_right=s; else if ( b<beta && s>s_left ) s_left=s; // Tighten the bracket if applicable.
const double newton = (beta-b)/bp, halley = square(x/s)/s-s/4, hh3 = halley*halley-3*square(x/(s*s))-0.25;
s += ds = std::max(-0.5*s , newton * householder_factor(newton,halley,hh3) );
}
return implied_volatility_output(iterations,s);
}
EXPORT_EXTERN_C double implied_volatility_from_a_transformed_rational_guess_with_limited_iterations(double price, double F, double K, double T, double q /* q=±1 */, int N){
const double intrinsic = fabs(std::max((q<0?K-F:F-K),0.0));
if (price<intrinsic)
return implied_volatility_output(0,VOLATILITY_VALUE_TO_SIGNAL_PRICE_IS_BELOW_INTRINSIC);
const double max_price = (q<0?K:F);
if (price>=max_price)
return implied_volatility_output(0,VOLATILITY_VALUE_TO_SIGNAL_PRICE_IS_ABOVE_MAXIMUM);
const double x = log(F/K);
// Map in-the-money to out-of-the-money
if (q*x>0) {
price = fabs(std::max(price-intrinsic,0.0));
q = -q;
}
return unchecked_normalised_implied_volatility_from_a_transformed_rational_guess_with_limited_iterations(price/(sqrt(F)*sqrt(K)), x, q, N)/sqrt(T);
}
EXPORT_EXTERN_C double implied_volatility_from_a_transformed_rational_guess(double price, double F, double K, double T, double q /* q=±1 */){
return implied_volatility_from_a_transformed_rational_guess_with_limited_iterations(price,F,K,T,q,implied_volatility_maximum_iterations.data);
}
EXPORT_EXTERN_C double normalised_implied_volatility_from_a_transformed_rational_guess_with_limited_iterations(double beta, double x, double q /* q=±1 */, int N){
// Map in-the-money to out-of-the-money
if (q*x>0) {
beta -= normalised_intrinsic(x, q);
q = -q;
}
if (beta<0)
return implied_volatility_output(0,VOLATILITY_VALUE_TO_SIGNAL_PRICE_IS_BELOW_INTRINSIC);
return unchecked_normalised_implied_volatility_from_a_transformed_rational_guess_with_limited_iterations(beta, x, q, N);
}
EXPORT_EXTERN_C double normalised_implied_volatility_from_a_transformed_rational_guess(double beta, double x, double q /* q=±1 */){
return normalised_implied_volatility_from_a_transformed_rational_guess_with_limited_iterations(beta,x,q,implied_volatility_maximum_iterations.data);
}