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fix(api): use N(d2) for probability of profit, not N(d1) (#8) #27

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fix(api): use N(d2) for probability of profit, not N(d1) (#8) #27

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5 changes: 4 additions & 1 deletion src/api/enhanced_strategy_recommender.py
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Original file line number Diff line number Diff line change
Expand Up @@ -542,9 +542,12 @@ def _calculate_probability_above(self, current_price: float, target_price: float

t = days / 365.0
d1 = (np.log(current_price / target_price) + (self.risk_free_rate + 0.5 * volatility**2) * t) / (volatility * np.sqrt(t))
# Risk-neutral probability that S_T > target is N(d2), not N(d1).
# N(d1) is the call delta; using it overstates the probability.
d2 = d1 - volatility * np.sqrt(t)

from scipy.stats import norm
return norm.cdf(d1)
return norm.cdf(d2)

def _calculate_probability_below(self, current_price: float, target_price: float,
volatility: float, days: int) -> float:
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