Merge pull request #6 from primitivefinance/fix/spot-test

fix(spot-price): normalized reserveRisky by dividing by liquidity in …
primitivefinance · Jul 28, 2021 · f608bcd · f608bcd
2 parents 6d4e121 + 82b3fbf
commit f608bcd
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Showing 3 changed files with 10 additions and 3 deletions.
diff --git a/src/CumulativeNormalDistribution.ts b/src/CumulativeNormalDistribution.ts
@@ -32,6 +32,7 @@ export const inverse_std_n_cdf = x => {
  * @returns CDF(CDF(x)^-1)^-1
  */
 export const quantilePrime = x => {
+  if (x > 1 || x < 0) return NaN
   return gaussian(0, 1).pdf(inverse_std_n_cdf(x)) ** -1
 }
 

diff --git a/src/ReplicationMath.ts b/src/ReplicationMath.ts
@@ -94,7 +94,9 @@ export function getSpotPrice(
   sigma: number,
   tau: number
 ): number {
-  return getTradingFunction(0, reserveRisky, liquidity, strike, sigma, tau) * quantilePrime(1 - reserveRisky)
+  return (
+    getTradingFunction(0, reserveRisky, liquidity, strike, sigma, tau) * quantilePrime(1 - reserveRisky / liquidity)
+  )
 }
 
 /**

diff --git a/test/replicationMath.test.ts b/test/replicationMath.test.ts
@@ -36,8 +36,12 @@ describe('Replication math', () => {
   })
 
   describe('calculate spot price', () => {
-    it('moneyness', () => {
-      expect(2).toEqual(2)
+    it('shouldnt be nan', () => {
+      expect(math.getSpotPrice(1, 2, 1, 1, 1) > 0).toBe(!NaN)
+    })
+
+    it('should be nan if reserveRisky is greater than 1', () => {
+      expect(math.getSpotPrice(3, 2, 1, 1, 1)).toBe(NaN)
     })
   })