Financial Modelling in Python

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c02 JWBK378-Fletcher May 1, 2009 19:51 Printer: Yet to come

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The PPF Package

The source code accompanying this book implements a minimal library, ppf, for exploring

financial modelling in Python. The sections ahead outline the structure and ideas of the

package.

The following is a first example of a financial program expressed in Python – the ‘Hello

World’ of Quantitative Analysis programs, that is, the Black–Scholes formula for a European

option on a single asset:

from math import log, sqrt, exp

from ppf.math import N

def black

scholes(S, K, r, sig, T, CP, *arguments, **keywords):

"""The classic Black and Scholes formula.

>>> print black

scholes(S=42., K=40., r=0.1, sig= 0.2, T=0.5,

CP=CALL) 4.75942193531

>>> print black

scholes(S=42., K=40., r=0.1, sig= 0.2, T=0.5,

CP=PUT) 0.808598915338

"""

d1 = (log(S/K) + (r + 0.5*(sig*sig))*T)/(sig*sqrt(T))

d2 = d1 - sig*sqrt(T)

return CP*S*N(CP*d1) - CP*K*exp(-r*T)*N(CP*d2)

CALL, PUT = (1, -1)

def

test():

import doctest

doctest.testmod()

if

name == ’ main ’: test()

2.1 PPF TOPOLOGY

The ppf library is a Python package containing a family of sub-packages. The

black

scholes function listed above is housed in the ppf.core subpackage. The topol-

ogy of ppf is as follows:

ppf/

com/

core/

date

time/

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