Implement Stress Metrics (Volatility Sensitivity, Time Decay Profile, Price Shock Impact) with Curve and Surface Representations

[joaquinbejar]

Implement key stress-testing metrics Volatility Sensitivity, Time Decay Profile, and Price Shock Impact. These metrics help evaluate how options behave under extreme market conditions, such as large moves in volatility, rapid time decay, or sudden price shocks.

Each metric should support curve and/or surface representations as specified:

Stress Metrics and Representations:

Metric	Curve Representation	Surface Representation
Volatility Sensitivity	Yes (by strike)	Yes (price vs. volatility)
Time Decay Profile	Yes (by strike)	Yes (price vs. time)
Price Shock Impact	Yes (by strike)	Yes (price vs. volatility)

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Tasks

Implementation:

• Implement Volatility Sensitivity calculation and provide:
  • Curve representation by strike price.
  • Surface representation (price vs. volatility).
• Implement Time Decay Profile calculation and provide:
  • Curve representation by strike price.
  • Surface representation (price vs. time).
• Implement Price Shock Impact calculation and provide:
  • Curve representation by strike price.
  • Surface representation (price vs. volatility).

Curve and Surface Generation:

• Ensure the curve representation integrates with the existing Curve structure.
• Implement a method to generate a surface for price vs. volatility for Volatility Sensitivity and Price Shock Impact.
• Implement a method to generate a surface for price vs. time for Time Decay Profile.

Testing:

• Validate the accuracy of each metric calculation.
• Ensure the curve representation correctly maps values by strike price.
• Ensure the surface representations interpolate values correctly.
• Include edge cases such as:
  • Extreme spikes in implied volatility.
  • Rapid shifts in time decay near expiration.
  • Large sudden price changes impacting option prices and greeks.

Documentation:

• Document the purpose and methodology of each stress metric.
• Provide details on how to interpret the curve and surface representations.
• Include examples demonstrating usage and visualization.

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Additional Notes

• These stress metrics are critical for risk management and should be optimized for efficiency.
• Ensure compatibility with existing market risk assessment tools.
• The surfaces should allow smooth interpolation to capture extreme market scenarios.

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Labels

enhancement, stress-metrics, options-trading, visualization, testing, documentation