Implementing a European Option class - c++

Question

I need implement the class Option_Pricer that encapsulates all the functions relevant to price both call and put options. The teacher is giving me a code listing (.cpp file) that I have to turn into a class. All the functions that I used in my class are therefore coming from the teacher. I simply have to implement them as a class.
Here is what I have done so far: I have split the code into two different files. One is called option_pricer.hpp and is used as an header for the main file option_pricer.cpp.
//option_pricer.hpp
#define _USE_MATH_DEFINES
#include <iostream>
#include <cmath>
class Option_Pricer {
private:
void init();
public:
double S;
double K;
double r;
double v;
double T;
double x;
double j;
public:
//Constructors
call_price();
put_price();
norm_pdf();
norm_cdf();
d_j() const;
// Assignment operator
call_price& operator = (const call_price& call);
put_price& operator = (const put_price& put);
};
Here is the main file:
//option_pricer.cpp
#define _USE_MATH_DEFINES
#include <iostream>
#include <cmath>
#include "option_pricer.hpp"
double Option_Pricer::norm_pdf(const double& x) const {
return (1.0/(pow(2*M_PI,0.5)))*exp(-0.5*x*x);
}
double Option_Pricer::norm_cdf(const double& x) const {
double k = 1.0/(1.0 + 0.2316419*x);
double k_sum = k*(0.319381530 + k*(-0.356563782 + k*(1.781477937 + k*(-1.821255978 + 1.330274429*k))));
if (x >= 0.0) {
return (1.0 -(1.0/(pow(2*M_PI,0.5)))*exp(-0.5*x*x) * k_sum);
}
else {
return 1.0 - norm_cdf(-x);
}
}
double Option_Pricer::d_j(const int& j, const double& S, const double& K, const double& r, const double& v, const double& T) const {
return (log(S/K) + (r + (pow(-1,j 1))*0.5*v*v)*T)/(v*(pow(T,0.5)));
}
double Option_Pricer::call_price(const double& S, const double& K, const double& r, const double& v, const double& T) const {
return S * norm_cdf(d_j(1, S, K, r, v, T))-K*exp(-r*T) * norm_cdf(d_j(2, S, K, r, v, T));
}
double Option_Pricer::put_price(const double& S, const double& K, const double& r, const double& v, const double& T) const {
return -S*norm_cdf(-d_j(1, S, K, r, v, T))+K*exp(-r*T) * norm_cdf(-d_j(2, S, K, r, v, T));
}
int main() {
Option_Pricer p;
p.S = 100.0;
p.K = 100.0;
p.r = 0.05;
p.v = 0.2;
p.T = 1.0;
double call_price = p.call_price();
double call_put = p.put_price();
// Finally we output the parameters and prices
std::cout << "Underlying: " << p.S << std::endl;
std::cout << "Strike: " << p.K << std::endl;
std::cout << "Risk-Free Rate: " << p.r << std::endl;
std::cout << "Volatility: "<< p.v << std::endl;
std::cout << "Maturity: " << p.T << std::endl;
std::cout << "Call price: " << call_price << std::endl;
std::cout << "Put price: " << call_put << std::endl;
return 0;
}
However, as you can guess, my code isn't compiling really well. My most common error is the following:
option_pricer.cpp:7:8: error: no declaration matches ‘double Option_Pricer::norm_pdf(const double&) const’
7 | double Option_Pricer::norm_pdf(const double& x) const {
| ^~~~~~~~~~~~~
I don't understand how I should call the norm_pdf from outside of the header (same question for norm_cdf and d_j).
I'm fairly new to C++ (was using Python before) and therefore don't understand yet how am I supposed to access the variables (S, K,...) from outside of my class.
Help will be appreciated! Thank you!

Answer 1

You need to make and understand the distinction between a class and an object. Very simply, an object is a collection of values in memory, and a class is a description of those values and of code that will use data organized according to the class description.
So, since Option_Pricer is a class, it doesn't make sense to say Option_Pricer.S = 100.0; in your main() method. You need to create an object of type Option_Pricer, and then fill that object's memory region with the values you want. A common method for doing that - especially in your case where you are simply initializing the object with numeric data - is to create and use a constructor, although you could modify your init() method to take arguments and set values and that would be fine too. You can even set the values one-by-one as you have done, since you made the values public, but you have to modify the object, not the class.
Ex.
int main()
{
Option_Pricer p(100.0, 100.0, 0.5, 0.2, 1.0);
double call_price = p.call_price();
// or
Option_Pricer p2;
p2.init(100.0, 100.0, 0.5, 0.2, 1.0);
double call_price2 = p2.call_price();
// or, if you like typing or want the meaning of the numbers to be super clear
Option_Pricer p3;
p3.S = 100.0;
p3.K = 100.0;
p3.r = 0.05;
p3.v = 0.2;
p3.T = 1.0;
// ...
This doesn't address everything that's wrong with your code, but I'd start by addressing the above. I think the problems that others are pointing out will be easier to sort out once you get the concept of an object squared away.