Merge pull request #25 from primitivefinance/feat/vol-targeting

Feat/Vol Targeting

.github/workflows/test.yaml

@@ -0,0 +1,27 @@
+name: test
+
+on: push
+
+jobs:
+  test:
+    name: test
+    runs-on: ubuntu-latest
+    steps:
+      - uses: actions/checkout@v3
+
+      - name: Install rust toolchain
+        uses: actions-rs/toolchain@v1
+        with:
+          toolchain: 1.71.0
+          override: true
+
+      - name: Install Foundry
+        uses: foundry-rs/foundry-toolchain@v1
+        with:
+          version: nightly
+
+      - name: Build bindings
+        run: FOUNDRY_PROFILE=default ./build.sh
+
+      - name: test
+        run: cargo test --workspace --exclude bindings

Cargo.toml

@@ -14,3 +14,4 @@ members = ["box-core", "box-simulation"]
 
 [workspace.dependencies]
 bindings = { path = "./box-contracts/out/bindings", version = "0.1.0" }
+box_core = { path = "./box-core", version = "0.1.0" }

box-contracts/src/AtomicArbitrage.sol

@@ -17,6 +17,14 @@ contract AtomicArbitrage {
     address public asset;
     address public quote;
 
+    constructor(address exchangeAddress, address liquidExchangeAddress, address assetAddress, address quoteAddress) {
+        exchange = exchangeAddress;
+        liquidExchange = liquidExchangeAddress;
+        asset = assetAddress;
+        quote = quoteAddress;
+    }
+
+
     function lower_exchange_price(
         uint256 input
     ) external {

box-core/Cargo.toml

@@ -1,5 +1,5 @@
 [package]
-name = "box-core"
+name = "box_core"
 version = "0.1.0"
 edition = "2021"
 

box-core/src/math.rs

@@ -11,31 +11,68 @@ pub fn compute_returns(values: Vec<f64>) -> Vec<f64> {
     returns
 }
 
-/// Computes the mean of a series of values (arithmetic average), finds the mean
-/// of the summed differences of the values vs. the mean.
-pub fn compute_variance(values: Vec<f64>) -> f64 {
-    let mean = values.iter().sum::<f64>() / values.len() as f64;
-    let variance = values
-        .iter()
-        .map(|&return_| (return_ - mean).powi(2))
-        .sum::<f64>()
-        / values.len() as f64;
-    variance
+pub trait ComputeReturns {
+    fn compute_log_returns(self) -> Vec<f64>;
+    fn compute_simple_returns(self) -> Vec<f64>;
+    fn compute_variance(self) -> f64;
+    fn compute_std_deviation(self) -> f64;
+    fn compute_realized_volatility(self) -> f64;
+    fn compute_sharpe_ratio(self) -> f64;
 }
 
-/// Computes the square root of the variance.
-pub fn compute_std_deviation(values: Vec<f64>) -> f64 {
-    let variance = compute_variance(values);
-    variance.sqrt()
-}
-
-/// The sharpe ratio is the ratio of the mean of the returns to the standard
-/// deviation of the returns.
-pub fn compute_sharpe_ratio(values: Vec<f64>) -> f64 {
-    let returns = compute_returns(values);
-    let mean = returns.iter().sum::<f64>() / returns.len() as f64;
-    let std_deviation = compute_std_deviation(returns);
-    mean / std_deviation
+impl<I> ComputeReturns for I
+where
+    I: IntoIterator<Item = f64>,
+{
+    fn compute_log_returns(self) -> Vec<f64> {
+        let mut previous_value = 0.0_f64;
+        let mut returns = Vec::new();
+        for value in self {
+            if previous_value != 0.0 {
+                returns.push((value / previous_value).ln());
+            }
+            previous_value = value;
+        }
+        returns
+    }
+    fn compute_simple_returns(self) -> Vec<f64> {
+        let mut previous_value = 0.0_f64;
+        let mut returns = Vec::new();
+        for value in self {
+            if previous_value != 0.0 {
+                returns.push(value / previous_value - 1.0);
+            }
+            previous_value = value;
+        }
+        returns
+    }
+    fn compute_variance(self) -> f64 {
+        let values = self.into_iter().collect::<Vec<f64>>();
+        let mean = values.iter().sum::<f64>() / values.len() as f64;
+        let variance = values
+            .iter()
+            .map(|&return_| (return_ - mean).powi(2))
+            .sum::<f64>()
+            / values.len() as f64;
+        variance
+    }
+    fn compute_std_deviation(self) -> f64 {
+        let variance = self.compute_variance();
+        variance.sqrt()
+    }
+    fn compute_realized_volatility(self) -> f64 {
+        let returns = self.compute_log_returns();
+        let len = returns.len() + 1;
+        let rv = returns.compute_std_deviation() / (len as f64 / 365.0);
+        rv
+    }
+    // TODO: don't use log returns here, use simple returns
+    fn compute_sharpe_ratio(self) -> f64 {
+        let returns = self.compute_simple_returns();
+        let mean = returns.iter().sum::<f64>() / returns.len() as f64;
+        let std_deviation = returns.compute_std_deviation();
+        mean / std_deviation
+    }
 }
 
 /// Finds the volatility delta to match the target volatility, with respect to
@@ -56,30 +93,58 @@ pub fn compute_target_volatility_delta(
 // todo: make sure these tests are correct, used copilot for them.
 mod tests {
     #[test]
-    fn test_compute_returns() {
+    fn test_compute_log_returns() {
+        use super::ComputeReturns;
+        let values = vec![1.0, 2.0, 3.0];
+        let returns = values.compute_log_returns();
+        assert_eq!(returns, [0.6931471805599453, 0.4054651081081644]);
+    }
+
+    #[test]
+    fn test_compute_simple_returns() {
+        use super::ComputeReturns;
         let values = vec![1.0, 2.0, 3.0];
-        let returns = super::compute_returns(values);
-        assert_eq!(returns, vec![1.0, 0.5]);
+        let returns = values.compute_simple_returns();
+        assert_eq!(returns, [1.0, 0.5]);
     }
 
     #[test]
     fn test_compute_variance() {
+        use super::ComputeReturns;
         let values = vec![1.0, 2.0, 3.0];
-        let variance = super::compute_variance(values);
+        let variance = values.compute_variance();
         assert_eq!(variance, 0.6666666666666666);
     }
 
     #[test]
     fn test_compute_std_deviation() {
+        use super::ComputeReturns;
         let values = vec![1.0, 2.0, 3.0];
-        let std_deviation = super::compute_std_deviation(values);
+        let std_deviation = values.compute_std_deviation();
         assert_eq!(std_deviation, 0.816496580927726);
     }
 
+    #[test]
+    fn test_std_dev_log_returns() {
+        use super::ComputeReturns;
+        let values = vec![1.0, 2.0, 3.0];
+        let vol = values.compute_log_returns().compute_std_deviation() / (3.0 / 365.0);
+        assert_eq!(vol, 17.50065940748334);
+    }
+
+    #[test]
+    fn test_realized_volatility() {
+        use super::ComputeReturns;
+        let values = vec![1.0, 2.0, 3.0];
+        let vol = values.compute_realized_volatility();
+        assert_eq!(vol, 17.50065940748334);
+    }
+
     #[test]
     fn test_compute_sharpe_ratio() {
+        use super::ComputeReturns;
         let values = vec![1.0, 2.0, 3.0];
-        let sharpe_ratio = super::compute_sharpe_ratio(values);
+        let sharpe_ratio = values.compute_sharpe_ratio();
         assert_eq!(sharpe_ratio, 3.0);
     }
 }