gistfile1.rb

class BlackScholesAlgorithm

  def initialize(option_grant)
    @option_grant             = option_grant
    @stock_price              = @option_grant.stock_price
    @exercise_price           = @option_grant.exercise_price
    @term                     = @option_grant.expected_term
    @grant_date               = @option_grant.grant_date
    company                   = @option_grant.equity_plan.company
    @public_companies_tickers = company.public_companies.map(&:ticker)
  end

  def fair_value
    (@stock_price * normal_distribution(d1)) -
    (@exercise_price * Math.exp(-annual_risk_free_rate * @term) * normal_distribution(d2))
  end

  private

  def volatility
    @volatility ||= @public_companies_tickers.map {|ticker| Yahoo::Finance.new(ticker).volatility(@term*365)}.average
    @volatility || 0.1
  end

  def annual_risk_free_rate
    RiskFree.new(@grant_date).get_date(@grant_date).get_rate(@term)
  end

  def d2
    d1 - (volatility * (@term**0.5))
  end

  def d1
    raise "stock_price is empty for option_grant #{@option_grant.id}" unless @stock_price
    raise "exercise_price is empty for option_grant #{@option_grant.id}" unless @exercise_price
    (Math.log(@stock_price / @exercise_price) +
    ((annual_risk_free_rate + ((volatility**2) / 2)) * @term)) / (volatility * (@term**0.5))
  end

  def normal_distribution(x)
    return 1.0 if (x > 6.0)
    return 0.0 if (x < -6.0)

    b1 = 0.31938153;
    b2 = -0.356563782;
    b3 = 1.781477937;
    b4 = -1.821255978;
    b5 = 1.330274429;
    p  = 0.2316419;
    c2 = 0.3989423;

    a = x.abs;
    t = 1.0 / (1.0 + a * p);
    b = c2*Math.exp((-x)*(x/2.0));
    n = ((((b5*t+b4)*t+b3)*t+b2)*t+b1)*t;
    n = 1.0-b*n;

    if ( x < 0.0 )
      n = 1.0 - n
    end

    return n;
  end

end