optionstratlib 0.17.3

// Scoped allow: bulk migration of unchecked `[]` indexing to
// `.get().ok_or_else(..)` tracked as follow-ups to #341. The existing
// call sites are internal to this file and audited for invariant-bound
// indices (fixed-length buffers, just-pushed slices, etc.).
#![allow(clippy::indexing_slicing)]

use crate::error::PricingError;
use crate::model::types::{OptionStyle, OptionType, Side};
use crate::pricing::payoff::{Payoff, PayoffInfo};
use crate::pricing::utils::*;
use crate::{d2f, f2d};
use positive::Positive;
use rust_decimal::{Decimal, MathematicalOps};
use std::num::NonZeroUsize;
use tracing::instrument;

#[cfg(test)]
use positive::pos_or_panic;

type BinomialTreeResult = Result<(Vec<Vec<Decimal>>, Vec<Vec<Decimal>>), PricingError>;

/// Parameters for pricing options using the Binomial Tree model.
///
/// This structure encapsulates all the necessary parameters required to calculate
/// the price of an option using the binomial pricing model. The binomial model is
/// a discrete-time, lattice-based approach to option pricing that can handle various
/// option types and styles.
///
/// The model builds a tree of possible future asset prices to determine the option's
/// value at each node, working backwards from expiration to the present value.
/// This approach is particularly valuable for American options or other early-exercise
/// scenarios.
#[derive(Debug, Clone)]
pub struct BinomialPricingParams<'a> {
    /// The current price of the underlying asset, represented as a positive value.
    pub asset: Positive,

    /// The volatility of the underlying asset, expressed as a positive value.
    /// This represents the standard deviation of the asset's returns.
    pub volatility: Positive,

    /// The risk-free interest rate used in the pricing model.
    pub int_rate: Decimal,

    /// The strike price of the option, represented as a positive value.
    pub strike: Positive,

    /// The time to expiration of the option in years, represented as a positive value.
    pub expiry: Positive,

    /// The number of steps to use in the binomial tree calculation,
    /// as a [`NonZeroUsize`] so zero is structurally invalid at the
    /// type level. Higher values increase accuracy but also
    /// computational cost. See
    /// [`crate::constants::DEFAULT_BINOMIAL_STEPS`] for a sensible
    /// default.
    pub no_steps: NonZeroUsize,

    /// The type of option (European, American, etc.) which determines
    /// when the option can be exercised.
    pub option_type: &'a OptionType,

    /// The style of the option (Call or Put) which determines whether the option
    /// gives the right to buy or sell the underlying asset.
    pub option_style: &'a OptionStyle,

    /// Indicates whether the option position is long (buying the option) or
    /// short (selling/writing the option).
    pub side: &'a Side,
}

/// Calculates the price of an option using the binomial model.
///
/// This function implements the binomial model for option pricing,
/// which is a numerical method for estimating the price of both European and American options.
/// The model constructs a binomial tree of possible future underlying asset prices
/// and then recursively calculates the option value from the leaves to the root of the tree.
///
/// # Arguments
///
/// * `params` - A `BinomialPricingParams` struct containing all necessary pricing parameters:
///     - `asset`: Current price of the underlying asset.
///     - `volatility`: Annualized volatility of the underlying asset.
///     - `int_rate`: Annualized risk-free interest rate.
///     - `strike`: Strike price of the option.
///     - `expiry`: Time to expiration in years.
///     - `no_steps`: Number of steps in the binomial tree.
///     - `option_type`: Type of option (e.g., European, American).
///     - `option_style`: Style of the option (Call or Put).
///     - `side`: Side of the trade (Long or Short).
///
/// # Returns
///
/// Returns the calculated price of the option as an `f64`.
///
/// # Special cases
///
/// - If `expiry` is 0, the function returns the intrinsic value of the option.
/// - If `volatility` is 0, the function calculates the option price deterministically.
///
/// # Notes
///
/// - The model's accuracy increases with the number of steps, but so does the computation time.
/// - This model assumes that the underlying asset follows a multiplicative binomial process.
/// - For American options, this model accounts for the possibility of early exercise.
///
/// # Errors
///
/// Returns [`PricingError::SqrtFailure`] when the up-factor exponent
/// produces an invalid `Decimal`, [`PricingError::BinomialNodeMissing`]
/// when the induction step cannot read an intermediate node, and
/// [`PricingError::Positive`] when any `Positive` construction
/// downstream (e.g. strike × discount factor) underflows below zero.
#[instrument(skip(params), fields(
    strike = %params.strike,
    asset = %params.asset,
    steps = params.no_steps.get(),
    style = ?*params.option_style,
    side = ?*params.side,
))]
pub fn price_binomial(params: BinomialPricingParams) -> Result<Decimal, PricingError> {
    let mut info = PayoffInfo {
        spot: params.asset,
        strike: params.strike,
        style: *params.option_style,
        side: *params.side,
        spot_prices: None,
        spot_min: None,
        spot_max: None,
    };

    if params.expiry == Decimal::ZERO {
        let intrinsic_value = f2d!(params.option_type.payoff(&info));
        return Ok(intrinsic_value);
    }
    if params.volatility == Decimal::ZERO {
        return calculate_discounted_payoff(params);
    }

    let no_steps_raw = params.no_steps.get();
    let dt = (params.expiry / Positive::new(no_steps_raw as f64)?).to_dec();
    let u = calculate_up_factor(params.volatility, dt)?;
    let d = calculate_down_factor(params.volatility, dt)?;
    let p = calculate_probability(params.int_rate, dt, d, u)?;
    let discount_factor = calculate_discount_factor(params.int_rate, dt)?;

    let mut prices: Vec<Decimal> = (0..=no_steps_raw)
        .map(|i| calculate_option_price(params.clone(), u, d, i))
        .collect::<Result<Vec<_>, _>>()?;

    for step in (0..no_steps_raw).rev() {
        for i in 0..=step {
            let option_value = option_node_value(p, prices[i + 1], prices[i], discount_factor)?;
            match params.option_type {
                OptionType::American => {
                    let spot = params.asset * u.powi(i as i64) * d.powi((step - i) as i64);
                    info.spot = spot;
                    let intrinsic_value = f2d!(params.option_type.payoff(&info));
                    prices[i] = option_value.max(intrinsic_value);
                }
                OptionType::Bermuda { exercise_dates } => {
                    // Calculate time at this step
                    let time_at_step = dt * Decimal::from(step as u32);
                    // Check if this step is an exercise date
                    let is_exercise_date = exercise_dates.iter().any(|&t| {
                        let t_dec = Decimal::try_from(t).unwrap_or(Decimal::ZERO);
                        (time_at_step - t_dec).abs() < dt / Decimal::TWO
                    });
                    if is_exercise_date {
                        let spot = params.asset * u.powi(i as i64) * d.powi((step - i) as i64);
                        info.spot = spot;
                        let intrinsic_value = f2d!(params.option_type.payoff(&info));
                        prices[i] = option_value.max(intrinsic_value);
                    } else {
                        prices[i] = option_value;
                    }
                }
                OptionType::European => {
                    prices[i] = option_value;
                }
                _ => {
                    return Err(PricingError::other(
                        "OptionType not supported for binomial pricing",
                    ));
                }
            }
        }
    }
    Ok(prices[0])
}

/// Generates a binomial tree for option pricing.
///
/// # Parameters
///
/// * `params`: A reference to `BinomialPricingParams` which contains the parameters required for
///   generating the binomial tree including expiration time, number of steps, volatility, interest rate,
///   asset price, strike price, option type, and option style.
///
/// # Returns
///
/// A tuple containing two vectors of vectors:
/// * `asset_tree`: The tree representing the possible future values of the asset at each step.
/// * `option_tree`: The tree representing the values of the option at each step.
///
/// The `generate_binomial_tree` function calculates the possible asset prices and option prices
/// at each node in a binomial tree based on the input parameters.
///
/// 1. It calculates the time interval `dt` for each step.
/// 2. `u` and `d` are the factors by which the price increases or decreases.
/// 3. `p` is the risk-neutral probability.
/// 4. It initializes the `asset_tree` and `option_tree` with the appropriate dimensions.
/// 5. The asset prices are computed for all nodes.
/// 6. The option values are computed at maturity based on the payoff function.
/// 7. The option values are then back-propagated to compute the option value at the current time.
///
/// # Example
///
/// ```rust
/// use rust_decimal::Decimal;
/// use rust_decimal_macros::dec;
/// use optionstratlib::model::types::{OptionStyle, OptionType, Side};
/// use optionstratlib::nz;
/// use positive::pos_or_panic;
/// use optionstratlib::pricing::binomial_model::{BinomialPricingParams, generate_binomial_tree};
/// use positive::Positive;
/// # fn run() -> Result<(), optionstratlib::error::Error> {
/// let params = BinomialPricingParams {
///             asset: Positive::HUNDRED,
///             volatility: pos_or_panic!(0.2),
///             int_rate: dec!(0.05),
///             strike: Positive::HUNDRED,
///             expiry: Positive::ONE,
///             no_steps: nz!(1000),
///             option_type: &OptionType::European,
///             option_style: &OptionStyle::Call,
///             side: &Side::Long,
///         };
/// let (asset_tree, option_tree) = generate_binomial_tree(&params)?;
/// # Ok(())
/// # }
/// ```
///
/// # Errors
///
/// Same failure surface as [`price_binomial`]:
/// [`PricingError::SqrtFailure`] when the up-factor exponent cannot
/// be represented, [`PricingError::BinomialNodeMissing`] when an
/// intermediate node of the lattice is unexpectedly absent, and
/// [`PricingError::Positive`] when a `Positive` construction
/// downstream underflows.
pub fn generate_binomial_tree(params: &BinomialPricingParams) -> BinomialTreeResult {
    let mut info = PayoffInfo {
        spot: params.asset,
        strike: params.strike,
        style: *params.option_style,
        side: *params.side,
        spot_prices: None,
        spot_min: None,
        spot_max: None,
    };

    let no_steps_raw = params.no_steps.get();
    let dt = (params.expiry / f2d!(no_steps_raw as f64)).to_dec();
    let up_factor = calculate_up_factor(params.volatility, dt)?;
    let down_factor = calculate_down_factor(params.volatility, dt)?;
    let probability = calculate_probability(params.int_rate, dt, down_factor, up_factor)?;
    let discount_factor = calculate_discount_factor(params.int_rate, dt)?;

    let mut asset_tree = vec![vec![Decimal::ZERO; no_steps_raw + 1]; no_steps_raw + 1];
    let mut option_tree = vec![vec![Decimal::ZERO; no_steps_raw + 1]; no_steps_raw + 1];

    for (step, step_vec) in asset_tree.iter_mut().enumerate() {
        for (node, node_val) in step_vec.iter_mut().enumerate().take(step + 1) {
            *node_val =
                up_factor.powi((step - node) as i64) * down_factor.powi(node as i64) * params.asset;
        }
    }

    for (node, node_val) in asset_tree[no_steps_raw]
        .iter()
        .enumerate()
        .take(no_steps_raw + 1)
    {
        info.spot = Positive::new_decimal(*node_val)?;
        option_tree[no_steps_raw][node] = f2d!(params.option_type.payoff(&info));
    }

    for step in (0..no_steps_raw).rev() {
        let (current_step_arr, next_step_arr) = option_tree.split_at_mut(step + 1);
        for (node_idx, node_val) in current_step_arr[step].iter_mut().enumerate().take(step + 1) {
            let node_value =
                option_node_value_wrapper(probability, next_step_arr, node_idx, discount_factor)?;
            match params.option_type {
                OptionType::European => {
                    *node_val = node_value;
                }
                OptionType::American => {
                    if (step == 0) & (node_idx == 0) {
                        *node_val = node_value;
                    } else {
                        info.spot = Positive::new_decimal(asset_tree[step][node_idx])?;
                        let intrinsic_value = params.option_type.payoff(&info);
                        let dec_node_val = d2f!(node_value);
                        *node_val = f2d!(intrinsic_value.max(dec_node_val));
                    }
                }
                OptionType::Bermuda { exercise_dates } => {
                    // Calculate time at this step
                    let time_at_step = dt * Decimal::from(step as u32);
                    // Check if this step is an exercise date
                    let is_exercise_date = exercise_dates.iter().any(|&t| {
                        let t_dec = Decimal::try_from(t).unwrap_or(Decimal::ZERO);
                        (time_at_step - t_dec).abs() < dt / Decimal::TWO
                    });
                    if is_exercise_date && !((step == 0) & (node_idx == 0)) {
                        info.spot = Positive::new_decimal(asset_tree[step][node_idx])?;
                        let intrinsic_value = params.option_type.payoff(&info);
                        let dec_node_val = d2f!(node_value);
                        *node_val = f2d!(intrinsic_value.max(dec_node_val));
                    } else {
                        *node_val = node_value;
                    }
                }
                _ => {
                    return Err(PricingError::other(
                        "OptionType not supported for binomial tree generation",
                    ));
                }
            }
        }
    }

    Ok((asset_tree, option_tree))
}

#[cfg(test)]
mod tests_price_binomial {
    use super::*;
    use crate::assert_decimal_eq;
    use crate::model::types::OptionType;
    use rust_decimal_macros::dec;

    const EPSILON: Decimal = dec!(1e-6);

    #[test]
    fn test_european_call_option() {
        let params = BinomialPricingParams {
            asset: Positive::HUNDRED,
            strike: Positive::HUNDRED,
            int_rate: dec!(0.05),
            volatility: pos_or_panic!(0.2),
            expiry: Positive::ONE,
            no_steps: crate::nz!(3),
            option_type: &OptionType::European,
            option_style: &OptionStyle::Call,
            side: &Side::Long,
        };

        let price = price_binomial(params).unwrap();
        assert_decimal_eq!(price, dec!(11.0438708), EPSILON);
    }

    #[test]
    fn test_european_put_option() {
        let params = BinomialPricingParams {
            asset: Positive::HUNDRED,
            volatility: pos_or_panic!(0.2),
            int_rate: dec!(0.05),
            strike: Positive::HUNDRED,
            expiry: Positive::ONE,
            no_steps: crate::nz!(1000),
            option_type: &OptionType::European,
            option_style: &OptionStyle::Put,
            side: &Side::Long,
        };

        let price = price_binomial(params).unwrap();
        assert_decimal_eq!(price, dec!(5.571526), EPSILON);
    }

    #[test]
    fn test_european_put_option_extended() {
        let params = BinomialPricingParams {
            asset: pos_or_panic!(50.0),
            volatility: pos_or_panic!(0.2),
            int_rate: dec!(0.05),
            strike: pos_or_panic!(52.0),
            expiry: Positive::ONE,
            no_steps: crate::nz!(1),
            option_type: &OptionType::European,
            option_style: &OptionStyle::Put,
            side: &Side::Long,
        };

        let price = price_binomial(params).unwrap();
        assert_decimal_eq!(price, dec!(4.446415), EPSILON);
    }

    #[test]
    fn test_short_option() {
        let params = BinomialPricingParams {
            asset: Positive::HUNDRED,
            volatility: pos_or_panic!(0.2),
            int_rate: dec!(0.05),
            strike: Positive::HUNDRED,
            expiry: Positive::ONE,
            no_steps: crate::nz!(1000),
            option_type: &OptionType::European,
            option_style: &OptionStyle::Call,
            side: &Side::Long,
        };

        let long_price = price_binomial(params.clone()).unwrap();
        let short_price = price_binomial(BinomialPricingParams {
            side: &Side::Short,
            ..params
        })
        .unwrap();
        assert_decimal_eq!(long_price, -short_price, EPSILON);
    }

    #[test]
    fn test_zero_volatility() {
        let asset = Positive::HUNDRED;
        let strike = Positive::HUNDRED;
        let int_rate = dec!(0.05);
        let expiry = Positive::ONE;

        let params = BinomialPricingParams {
            asset,
            volatility: Positive::ZERO,
            int_rate,
            strike,
            expiry,
            no_steps: crate::nz!(1000),
            option_type: &OptionType::European,
            option_style: &OptionStyle::Call,
            side: &Side::Long,
        };

        let price = price_binomial(params).unwrap();

        let exact_price = (asset * (int_rate * expiry).exp() - strike).max(Positive::ZERO)
            * (-int_rate * expiry).exp();

        assert_decimal_eq!(price, exact_price, EPSILON);
    }

    #[test]
    fn test_deep_in_the_money() {
        let params = BinomialPricingParams {
            asset: pos_or_panic!(150.0),
            volatility: pos_or_panic!(0.2),
            int_rate: dec!(0.05),
            strike: Positive::HUNDRED,
            expiry: Positive::ONE,
            no_steps: crate::nz!(1000),
            option_type: &OptionType::European,
            option_style: &OptionStyle::Call,
            side: &Side::Long,
        };

        let price = price_binomial(params).unwrap();
        assert!(price > dec!(50.0));
    }

    #[test]
    fn test_deep_out_of_the_money() {
        let params = BinomialPricingParams {
            asset: pos_or_panic!(50.0),
            volatility: pos_or_panic!(0.2),
            int_rate: dec!(0.05),
            strike: Positive::HUNDRED,
            expiry: Positive::ONE,
            no_steps: crate::nz!(1000),
            option_type: &OptionType::European,
            option_style: &OptionStyle::Call,
            side: &Side::Long,
        };

        let price = price_binomial(params).unwrap();
        assert!(price < Decimal::ONE);
    }

    #[test]
    fn test_zero_time_to_expiry() {
        let params = BinomialPricingParams {
            asset: Positive::HUNDRED,
            volatility: pos_or_panic!(0.2),
            int_rate: dec!(0.05),
            strike: Positive::HUNDRED,
            expiry: Positive::ZERO,
            no_steps: crate::nz!(1000),
            option_type: &OptionType::European,
            option_style: &OptionStyle::Call,
            side: &Side::Long,
        };

        let price = price_binomial(params).unwrap();
        assert_decimal_eq!(price, Decimal::ZERO, EPSILON);
    }
}

#[cfg(test)]
mod tests_generate_binomial_tree {
    use super::*;
    use crate::assert_decimal_eq;
    use crate::model::types::OptionType;
    use rust_decimal_macros::dec;

    const EPSILON: Decimal = dec!(1e-5);

    #[test]
    fn test_binomial_tree_basic() {
        let params = BinomialPricingParams {
            asset: Positive::HUNDRED,
            strike: Positive::HUNDRED,
            int_rate: dec!(0.05),
            volatility: pos_or_panic!(0.2),
            expiry: Positive::ONE,
            no_steps: crate::nz!(3),
            option_type: &OptionType::European,
            option_style: &OptionStyle::Call,
            side: &Side::Long,
        };

        let (asset_tree, option_tree) = generate_binomial_tree(&params).unwrap();

        // Check if the asset tree is generated correctly
        assert_eq!(asset_tree[0][0], dec!(100.0));
        assert_decimal_eq!(asset_tree[1][0], dec!(112.2400899), EPSILON);
        assert_decimal_eq!(asset_tree[3][1], dec!(112.2400899), EPSILON);
        assert_decimal_eq!(option_tree[0][0], dec!(11.0438708), EPSILON);
        assert_decimal_eq!(option_tree[1][0], dec!(17.713887), EPSILON);
        assert_decimal_eq!(option_tree[1][1], dec!(3.500653), EPSILON);
        assert_decimal_eq!(option_tree[2][0], dec!(27.631232), EPSILON);
        assert_decimal_eq!(option_tree[2][1], dec!(6.5458625), EPSILON);
        assert_decimal_eq!(option_tree[2][2], Decimal::ZERO, EPSILON);
        assert_decimal_eq!(option_tree[3][0], dec!(41.398244), EPSILON);
        assert_decimal_eq!(option_tree[3][1], dec!(12.240089), EPSILON);
        assert_decimal_eq!(option_tree[3][2], Decimal::ZERO, EPSILON);
        assert_decimal_eq!(option_tree[3][3], Decimal::ZERO, EPSILON);
    }

    #[test]
    fn test_binomial_tree_put_option() {
        let params = BinomialPricingParams {
            asset: Positive::HUNDRED,
            strike: Positive::HUNDRED,
            int_rate: dec!(0.05),
            volatility: pos_or_panic!(0.2),
            expiry: Positive::ONE,
            no_steps: crate::nz!(3),
            option_type: &OptionType::European,
            option_style: &OptionStyle::Put,
            side: &Side::Long,
        };

        let (_, option_tree) = generate_binomial_tree(&params).unwrap();

        assert_decimal_eq!(option_tree[3][0], Decimal::ZERO, EPSILON);
        assert_decimal_eq!(option_tree[3][1], Decimal::ZERO, EPSILON);
        assert_decimal_eq!(option_tree[3][2], dec!(10.905274), EPSILON);
        assert_decimal_eq!(option_tree[3][3], dec!(29.277764), EPSILON);
    }

    #[test]
    fn test_binomial_tree_call_option_check() {
        let params = BinomialPricingParams {
            asset: pos_or_panic!(30.0),
            strike: pos_or_panic!(30.0),
            expiry: Positive::ONE,
            int_rate: dec!(0.05),
            volatility: pos_or_panic!(0.17),
            no_steps: crate::nz!(1),
            option_type: &OptionType::European,
            option_style: &OptionStyle::Call,
            side: &Side::Long,
        };

        let (asset_tree, option_tree) = generate_binomial_tree(&params).unwrap();

        // Test asset tree
        assert_eq!(asset_tree.len(), 2);
        assert_decimal_eq!(asset_tree[0][0], dec!(30.0), EPSILON);
        assert_decimal_eq!(asset_tree[1][0], dec!(35.559145), EPSILON);
        assert_decimal_eq!(asset_tree[1][1], dec!(25.309944), EPSILON);
        assert_decimal_eq!(option_tree[0][0], dec!(3.213401), EPSILON);
        assert_decimal_eq!(option_tree[1][0], dec!(5.559145), EPSILON);
        assert_decimal_eq!(option_tree[1][1], Decimal::ZERO, EPSILON);

        let params = BinomialPricingParams {
            asset: pos_or_panic!(30.0),
            strike: pos_or_panic!(30.0),
            expiry: Positive::ONE,
            int_rate: dec!(0.05),
            volatility: pos_or_panic!(0.17),
            no_steps: crate::nz!(2),
            option_type: &OptionType::European,
            option_style: &OptionStyle::Call,
            side: &Side::Long,
        };

        let (asset_tree, option_tree) = generate_binomial_tree(&params).unwrap();

        // Test asset tree
        assert_eq!(asset_tree.len(), 3);
        assert_decimal_eq!(asset_tree[0][0], dec!(30.0), EPSILON);
        assert_decimal_eq!(asset_tree[1][0], dec!(33.831947), EPSILON);
        assert_decimal_eq!(asset_tree[1][1], dec!(26.602075), EPSILON);
        assert_decimal_eq!(asset_tree[2][0], dec!(38.153354), EPSILON);
        assert_decimal_eq!(asset_tree[2][1], dec!(30.0), EPSILON);
        assert_decimal_eq!(asset_tree[2][2], dec!(23.589013), EPSILON);

        assert_decimal_eq!(option_tree[0][0], dec!(2.564481), EPSILON);
        assert_decimal_eq!(option_tree[1][0], dec!(4.572649), EPSILON);
        assert_decimal_eq!(option_tree[1][1], Decimal::ZERO, EPSILON);
        assert_decimal_eq!(option_tree[2][0], dec!(8.153354), EPSILON);
        assert_decimal_eq!(option_tree[2][1], Decimal::ZERO, EPSILON);
        assert_decimal_eq!(option_tree[2][2], Decimal::ZERO, EPSILON);
    }

    #[test]
    fn test_binomial_tree_put_option_check() {
        let params = BinomialPricingParams {
            asset: Positive::HUNDRED,
            strike: pos_or_panic!(110.0),
            expiry: pos_or_panic!(3.0), // Assuming each time step is 1 unit of time
            int_rate: dec!(0.05),
            volatility: pos_or_panic!(0.09531018), // Calculated to match the 10% up/down movement
            no_steps: crate::nz!(3),
            option_type: &OptionType::European,
            option_style: &OptionStyle::Put,
            side: &Side::Long,
        };

        let (asset_tree, option_tree) = generate_binomial_tree(&params).unwrap();

        // Test asset tree
        assert_eq!(asset_tree.len(), 4);
        assert_decimal_eq!(asset_tree[0][0], dec!(100.0), EPSILON);
        assert_decimal_eq!(asset_tree[1][0], dec!(110.0), EPSILON);
        assert_decimal_eq!(asset_tree[1][1], dec!(90.909090), EPSILON);
        assert_decimal_eq!(asset_tree[2][0], dec!(121.0), EPSILON);
        assert_decimal_eq!(asset_tree[2][1], dec!(100.0), EPSILON);
        assert_decimal_eq!(asset_tree[2][2], dec!(82.644628), EPSILON);
        assert_decimal_eq!(asset_tree[3][0], dec!(133.1), EPSILON);
        assert_decimal_eq!(asset_tree[3][1], dec!(110.0), EPSILON);
        assert_decimal_eq!(asset_tree[3][2], dec!(90.909090), EPSILON);
        assert_decimal_eq!(asset_tree[3][3], dec!(75.131480), EPSILON);
        assert_decimal_eq!(option_tree[0][0], dec!(2.890941), EPSILON);
        assert_decimal_eq!(option_tree[1][0], dec!(1.125426), EPSILON);
        assert_decimal_eq!(option_tree[1][1], dec!(8.623025), EPSILON);
        assert_decimal_eq!(option_tree[2][0], Decimal::ZERO, EPSILON);
        assert_decimal_eq!(option_tree[2][1], dec!(4.635236), EPSILON);
        assert_decimal_eq!(option_tree[2][2], dec!(21.990608), EPSILON);
        assert_decimal_eq!(option_tree[3][0], Decimal::ZERO, EPSILON);
        assert_decimal_eq!(option_tree[3][1], Decimal::ZERO, EPSILON);
        assert_decimal_eq!(option_tree[3][2], dec!(19.090909), EPSILON);
        assert_decimal_eq!(option_tree[3][3], dec!(34.868519), EPSILON);
    }

    #[test]
    fn test_binomial_tree_european_put_option() {
        // Define parameters for an American option test case
        let params = BinomialPricingParams {
            asset: pos_or_panic!(50.0),
            volatility: pos_or_panic!(0.2),
            int_rate: dec!(0.05),
            strike: pos_or_panic!(52.0),
            expiry: Positive::TWO,
            no_steps: crate::nz!(2),
            option_type: &OptionType::European,
            option_style: &OptionStyle::Put,
            side: &Side::Long,
        };

        let (asset_tree, option_tree) = generate_binomial_tree(&params).unwrap();

        assert_decimal_eq!(asset_tree[0][0], dec!(50.0), EPSILON);
        assert_decimal_eq!(asset_tree[1][0], dec!(61.070137), EPSILON);
        assert_decimal_eq!(asset_tree[1][1], dec!(40.936537), EPSILON);
        assert_decimal_eq!(asset_tree[2][0], dec!(74.591234), EPSILON);
        assert_decimal_eq!(asset_tree[2][1], dec!(50.0), EPSILON);
        assert_decimal_eq!(asset_tree[2][2], dec!(33.516002), EPSILON);
        assert_decimal_eq!(option_tree[0][0], dec!(3.8687179), EPSILON);
        assert_decimal_eq!(option_tree[1][0], dec!(0.8038018), EPSILON);
        assert_decimal_eq!(option_tree[1][1], dec!(8.5273923), EPSILON);
        assert_decimal_eq!(option_tree[2][0], Decimal::ZERO, EPSILON);
        assert_decimal_eq!(option_tree[2][1], dec!(2.0), EPSILON);
        assert_decimal_eq!(option_tree[2][2], dec!(18.483997), EPSILON);
    }

    #[test]
    fn test_binomial_tree_american_put_option() {
        // Define parameters for an American option test case
        let params = BinomialPricingParams {
            asset: pos_or_panic!(50.0),
            volatility: pos_or_panic!(0.2),
            int_rate: dec!(0.05),
            strike: pos_or_panic!(52.0),
            expiry: Positive::TWO,
            no_steps: crate::nz!(2),
            option_type: &OptionType::American,
            option_style: &OptionStyle::Put,
            side: &Side::Long,
        };
        let (asset_tree, option_tree) = generate_binomial_tree(&params).unwrap();

        assert_decimal_eq!(asset_tree[0][0], dec!(50.0), EPSILON);
        assert_decimal_eq!(asset_tree[1][0], dec!(61.070137), EPSILON);
        assert_decimal_eq!(asset_tree[1][1], dec!(40.936537), EPSILON);
        assert_decimal_eq!(asset_tree[2][0], dec!(74.591234), EPSILON);
        assert_decimal_eq!(asset_tree[2][1], dec!(50.0), EPSILON);
        assert_decimal_eq!(asset_tree[2][2], dec!(33.516002), EPSILON);
        assert_decimal_eq!(option_tree[2][0], Decimal::ZERO, EPSILON);
        assert_decimal_eq!(option_tree[2][1], dec!(2.0), EPSILON);
        assert_decimal_eq!(option_tree[2][2], dec!(18.483997), EPSILON);
        assert_decimal_eq!(option_tree[1][0], dec!(0.803801), EPSILON);

        assert_decimal_eq!(option_tree[1][1], params.strike - asset_tree[1][1], EPSILON);
        assert_decimal_eq!(option_tree[0][0], dec!(4.887966), EPSILON);
    }
}

#[cfg(test)]
mod tests_bermuda_option {
    use super::*;
    use crate::assert_decimal_eq;
    use crate::model::types::OptionType;
    use rust_decimal_macros::dec;

    const EPSILON: Decimal = dec!(1e-4);

    #[test]
    fn test_bermuda_price_between_european_and_american() {
        // Bermuda price should be: European <= Bermuda <= American
        let european_params = BinomialPricingParams {
            asset: pos_or_panic!(50.0),
            volatility: pos_or_panic!(0.2),
            int_rate: dec!(0.05),
            strike: pos_or_panic!(52.0),
            expiry: Positive::ONE,
            no_steps: crate::nz!(100),
            option_type: &OptionType::European,
            option_style: &OptionStyle::Put,
            side: &Side::Long,
        };

        let american_params = BinomialPricingParams {
            option_type: &OptionType::American,
            ..european_params.clone()
        };

        // Exercise at 3 months, 6 months, 9 months
        let bermuda_type = OptionType::Bermuda {
            exercise_dates: vec![0.25, 0.5, 0.75],
        };
        let bermuda_params = BinomialPricingParams {
            option_type: &bermuda_type,
            ..european_params.clone()
        };

        let european_price = price_binomial(european_params).unwrap();
        let american_price = price_binomial(american_params).unwrap();
        let bermuda_price = price_binomial(bermuda_params).unwrap();

        assert!(
            european_price <= bermuda_price,
            "European {} should be <= Bermuda {}",
            european_price,
            bermuda_price
        );
        assert!(
            bermuda_price <= american_price,
            "Bermuda {} should be <= American {}",
            bermuda_price,
            american_price
        );
    }

    #[test]
    fn test_bermuda_single_exercise_date() {
        // Single exercise date should give price between European and American
        let bermuda_type = OptionType::Bermuda {
            exercise_dates: vec![0.5],
        };
        let params = BinomialPricingParams {
            asset: Positive::HUNDRED,
            volatility: pos_or_panic!(0.3),
            int_rate: dec!(0.05),
            strike: pos_or_panic!(105.0),
            expiry: Positive::ONE,
            no_steps: crate::nz!(50),
            option_type: &bermuda_type,
            option_style: &OptionStyle::Put,
            side: &Side::Long,
        };

        let price = price_binomial(params).unwrap();
        assert!(
            price > Decimal::ZERO,
            "Bermuda put price should be positive"
        );
    }

    #[test]
    fn test_bermuda_many_exercise_dates_approaches_american() {
        // With many exercise dates, Bermuda should approach American price
        let european_params = BinomialPricingParams {
            asset: pos_or_panic!(50.0),
            volatility: pos_or_panic!(0.2),
            int_rate: dec!(0.05),
            strike: pos_or_panic!(52.0),
            expiry: Positive::ONE,
            no_steps: crate::nz!(52),
            option_type: &OptionType::European,
            option_style: &OptionStyle::Put,
            side: &Side::Long,
        };

        let american_params = BinomialPricingParams {
            option_type: &OptionType::American,
            ..european_params.clone()
        };

        // Weekly exercise dates (52 dates for 1 year)
        let exercise_dates: Vec<f64> = (1..=52).map(|i| i as f64 / 52.0).collect();
        let bermuda_type = OptionType::Bermuda { exercise_dates };
        let bermuda_params = BinomialPricingParams {
            option_type: &bermuda_type,
            ..european_params.clone()
        };

        let american_price = price_binomial(american_params).unwrap();
        let bermuda_price = price_binomial(bermuda_params).unwrap();

        // Bermuda with weekly exercise should be close to American
        let diff = (american_price - bermuda_price).abs();
        assert!(
            diff < dec!(0.5),
            "Bermuda with 52 exercise dates should be close to American: diff = {}",
            diff
        );
    }

    #[test]
    fn test_bermuda_no_exercise_dates_equals_european() {
        // Empty exercise dates results in European-like behavior
        let european_params = BinomialPricingParams {
            asset: Positive::HUNDRED,
            volatility: pos_or_panic!(0.2),
            int_rate: dec!(0.05),
            strike: Positive::HUNDRED,
            expiry: Positive::ONE,
            no_steps: crate::nz!(50),
            option_type: &OptionType::European,
            option_style: &OptionStyle::Put,
            side: &Side::Long,
        };

        let bermuda_type = OptionType::Bermuda {
            exercise_dates: vec![],
        };
        let bermuda_params = BinomialPricingParams {
            option_type: &bermuda_type,
            ..european_params.clone()
        };

        let european_price = price_binomial(european_params).unwrap();
        let bermuda_price = price_binomial(bermuda_params).unwrap();

        assert_decimal_eq!(european_price, bermuda_price, EPSILON);
    }

    #[test]
    fn test_bermuda_call_option() {
        let bermuda_type = OptionType::Bermuda {
            exercise_dates: vec![0.25, 0.5, 0.75],
        };
        let params = BinomialPricingParams {
            asset: Positive::HUNDRED,
            volatility: pos_or_panic!(0.25),
            int_rate: dec!(0.05),
            strike: pos_or_panic!(95.0),
            expiry: Positive::ONE,
            no_steps: crate::nz!(100),
            option_type: &bermuda_type,
            option_style: &OptionStyle::Call,
            side: &Side::Long,
        };

        let price = price_binomial(params).unwrap();
        assert!(
            price > dec!(5.0),
            "ITM Bermuda call should have value > intrinsic"
        );
    }
}