Overview
Conventions
The units and assumptions behind a ranked candidate are stated on the surface, so a reader of the output can reproduce the numbers without reading the source.
Pricing conventions from FerroRisk
FerroSpread inherits FerroRisk's stated conventions rather than re-deriving them, so a leg priced here matches the same leg priced directly: time in years, continuously-compounded rates, per-calendar-day theta, and raw vega (dV/dσ, not per vol point).
Probabilities are model-based
Probability of profit and expected value are theoretical — computed from the parametric surface and the chosen pricing model, not empirical frequencies. The model and surface FitQuality travel with every candidate in its assumptions trail.
Ranking metrics
| Metric | Description |
|---|---|
| ExpectedValue | Theoretical expected P&L at expiry under the model. |
| ProbabilityOfProfit | Model probability the position expires profitable. |
| CapitalEfficiency | Return per unit of capital required (return per BPR). |
| CapitalRequired | Buying-power reduction (BPR) to hold the position. |
| MaxLoss | Worst-case loss at expiry, defined on the payoff. |
| BreakevenDistance | Distance from spot to the nearest breakeven. |
Capital and risk, defined
Max loss, capital required (BPR), and capital efficiency are defined on the payoff surface, stated at the call site, and reported per candidate — not left to the caller to reconstruct. Constraints are typed ranges over the same metrics used for ranking.
The explanation payload is tested to reconcile with the rank: score components must sum to the rank, dominant-Greek attribution must match the analytic Greeks, and comparables must cover the candidate's neighborhood.
Next
- Strategies — the construction taxonomy these metrics rank over.
- Explain a candidate — read the assumptions trail field by field.