Premia: An Option Pricing Project
by Claude Martini and Antonino Zanette
The main purpose of the Premia consortium is to provide routines
for pricing financial derivative products together with scientific
documentation. The Premia project is carried out at INRIA and
CERMICS (Centre d’Enseignement et de Recherche en Mathématiques,
Informatique et Calcul Scientifique).
The Premia project focuses on the implementation of numerical
analysis techniques to compute the quantities of interest rather
than on the financial context. It is an attempt to keep track
of the most recent advances in the field from a numerical point
of view in a well-documented manner. The ultimate aim is to assist
the R&D professional teams in their day-to-day duty. It may also
be useful for academics who wish to perform tests on a new algorithm
or pricing method without starting from scratch.
The Premia project is three-fold:
- the first component is a library designed to describe derivative
products, models, pricing methods and which provides basic input/output
functionalities. This library is written in C language and is
object-oriented.
- The second component is the pricing routines themselves. Each
routine is written in a separate .c file. The .c file contains
the code of the routine; this part of the code is what matters
for users who want to plug the routines of Premia in to another
software.
- The third component is the scientific documentation system. It
is created from hyperlinked PDF files which discuss either a pricing
routine (every routine has its own PDF doc file) or a more general
topic like Monte Carlo methods, lattice methods, etc. This web
of PDF files also includes a PDF version of the whole C source
code with easy jumps from the source file to the documentation
file
The most valuable component of this project is the documentation
which makes use of the scientific and numerical knowledge of our
institutions. This documentation will complement in an important
way books devoted to theoretical option pricing. The routines
themselves come in second. We feel that on a given pricing issue
some other professional R&D team will certainly have much better
and competitive software or algorithm. Nevertheless on the average
Premia should be of interest to them. Lastly the object-oriented
software is only there to provide an easy way to test things.
It was mainly designed for the use of the Premia team. Thus, Premia
is more attractive than a plain library of C routines.
Current State and Perspectives
We have already programmed and documented a fairly large set of
routines computing the prices and the hedges of stock options.
These routines use mainly explicit, lattice or finite difference
methods. Current work deals with Monte-Carlo and quasi-Monte-carlo
methods. We plan to start implementing algorithms for interest
rate options in early 2000.
This project is funded by a group of financial institutions called
the Premia consortium. Members of the consortium are Crédit Agricole
Indosuez, Crédit Lyonnais, Caisse Centrale des Banques Populaires,
Union Européenne du CIC, Caisse des Dépots et Consignations. The
funding members have access to the complete software with the
source and the documentation. Other interested financial institutions
are welcome to join the consortium.
A web site describing in more detail the aims of the project and
the way to join the consortium is available at: http://cermics.enpc.fr/~premia/
Please contact:
Claude Martini - INRIA
Tel: +33 1 39 63 51 01
E-mail: claude.martini@inria.fr
