Overview

Pricing models

Seven models dispatch through one PricingModel enum — European to American, lognormal to normal, deterministic to stochastic vol, with jumps. The model is always named explicitly at the call site.

The seven models

Naming a model

Unit-variant models are named directly; parameterized models carry their configuration in the variant (with const constructors for convenience):

use ferro_risk::{price, PricingInputs, PricingModel};

// unit variants
price(&inputs, PricingModel::BlackScholesMerton)?;
price(&inputs, PricingModel::Black76)?;
price(&inputs, PricingModel::BjerksundStensland)?;

// parameterized variants
price(&inputs, PricingModel::displaced_black(0.03))?;
// PricingModel::heston(...), PricingModel::jump_diffusion(...)
# Ok::<(), ferro_risk::FerroRiskError>(())

Discrete cash dividends

The PricingModel variants all take carry as a continuous dividend_yield. For listed equity options, where the underlying pays discrete cash amounts on known ex-dates, the American path accepts a DividendSchedule instead: it prices the escrowed spot S − Σ Dᵢ·e^(−r·tᵢ) through the unchanged Bjerksund-Stensland kernel.

use ferro_risk::{american_price_with_dividends, DividendEvent, DividendSchedule};

let schedule = DividendSchedule::new(vec![
    DividendEvent::new(38.0 / 365.0, 0.96)?,
])?;
let premium = american_price_with_dividends(&pricing, &schedule)?;

// The empty schedule is the exact no-dividend identity.
assert_eq!(
    american_price_with_dividends(&pricing, &DividendSchedule::empty())?.to_bits(),
    ferro_risk::american_price(&pricing)?.to_bits(),
);
# Ok::<(), ferro_risk::FerroRiskError>(())

The same schedule rides on IvSolveInputs.dividends, so implied_vol, contract_analytics, and de_americanize_quote all invert on the escrowed process. See dividends & de-Americanization.

American CRR reference

Alongside the production BjerksundStensland path, an opt-in high-fidelity Cox-Ross-Rubinstein binomial reference is available for validation workflows via american_reference_price / american_reference_report. It is intentionally slower and is not a PricingModel variant — use it to check the fast approximation, not to price in production.

Dupire local volatility

Beyond the parametric models, FerroRisk extracts a Dupire local-vol surface from any calibrated surface and reprices over it with backward Crank-Nicolson PDE, forward Dupire-strip PDE, and Monte-Carlo kernels. See surface calibration.