gistfile1.rb

class BlackScholesAlgorithm

  def initialize(options)
    # options.assert_valid_keys(:stock_price, :exercise_price, :expected_term, :comparables)
    @stock_price              = options[:stock_price] || raise("stock_price is empty")
    @exercise_price           = options[:exercise_price] || raise("exercise_price is empty")
    @term                     = options[:expected_term]
    @public_companies_tickers = options[:comparables]
  end

  def value(on_date)
    (@stock_price * normal_distribution(d1(on_date))) -
    (@exercise_price * Math.exp(-annual_risk_free_rate(on_date) * @term) * \
     normal_distribution(d2(on_date)))
  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(date)
    RiskFree.new(date).get_date(date).get_rate(@term)
  end

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

  def d1(date)
    (Math.log(@stock_price / @exercise_price) +
    ((annual_risk_free_rate(date) + ((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