Advanced Search
MyIDEAS: Login

Neural Networks as Semiparametric Option Pricing Tool

Contents:

Author Info

  • Michaela Barunikova

    ()

  • Jozef Barunik

    ()

Abstract

We study the ability of artificial neural networks to price the European style call and put options on the S&P 500 index covering the daily data for the period from June 2004 to June 2007. The greatest advantage of option pricing with neural networks is that we do not need to make any assumptions about the volatility of the underlying asset. We divide the data set into several categories according to moneyness and time to maturity. Then, we price all options through the categories. The results show that neural networks outperform benchmark Black Scholes model with significantly lower pricing error across all categories for both call and put options. Moreover, the difference between Black Scholes and neural network errors significantly widens with deepness of moneyness or expiration. The deeper the option is in/out of the money and/or the longer the option has expiration, the greater is the difference between neural networks and Black Scholes errors. We show that neural networks can correct for the Black Scholes maturity and moneyness bias.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://ces.utia.cas.cz/bulletin/index.php/bulletin/article/view/189
Download Restriction: no

Bibliographic Info

Article provided by The Czech Econometric Society in its journal Bulletin of the Czech Econometric Society.

Volume (Year): 18 (2011)
Issue (Month): 28 ()
Pages:

as in new window
Handle: RePEc:czx:journl:v:18:y:2011:i:28:id:189

Contact details of provider:
Email:
Web page: http://ces.utia.cas.cz
More information through EDIRC

Related research

Keywords: option valuation; neural network; S&P 500 index options;

Find related papers by JEL classification:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:czx:journl:v:18:y:2011:i:28:id:189. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jozef Barunik).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.