fix(api): use N(d2) for probability of profit, not N(d1) (#8)#27
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bradsmithmba wants to merge 1 commit into
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fix(api): use N(d2) for probability of profit, not N(d1) (#8)#27bradsmithmba wants to merge 1 commit into
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_calculate_probability_above() returned norm.cdf(d1) as the probability that the underlying finishes above a target. The risk-neutral probability P[S_T > K] is N(d2), not N(d1); N(d1) is the call delta and is always larger, so every probability-of-profit figure was overstated. Every POP value in the system flows through this method (directly and via _calculate_probability_below / _between), so the bias was system-wide. Compute d2 = d1 - sigma*sqrt(t) and return N(d2). For S=100, K=105, vol=0.25, 30d, r=0.05 this corrects 0.2784 -> 0.2549 (a 2.35 pt overstatement removed). Closes cloudtrainerwork#8 Co-Authored-By: Claude Opus 4.8 <noreply@anthropic.com>
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Summary
_calculate_probability_above()insrc/api/enhanced_strategy_recommender.pyreturnednorm.cdf(d1)as the probability that the underlying finishes above a target price. The correct risk-neutral probabilityP[S_T > K]isN(d2), notN(d1).N(d1)is the call delta — always larger thanN(d2)— so every probability-of-profit figure in the system was overstated.Closes #8.
Blast radius
This method is the single source of POP in the recommender.
_calculate_probability_below()and_calculate_probability_between()both delegate to it, and strategy POP/prob_profitfields are computed from it, so the bias propagated everywhere POP is shown or used for ranking.Fix
Verification
For S=100, K=105, vol=0.25, 30 days, r=0.05:
No existing test asserts the previous (incorrect) value, so nothing else changes.
🤖 Generated with Claude Code