Option Pricing: The empirical tests of the Black-Scholes pricing formula and the feed-forward networks
AbstractIn this article we evaluate the pricing performance of the rather simple but revolutionary Black-Scholes model and one of the more complex techniques (neural networks) on the European-style S&P Index call and put options over the period of 1.6.2006 till 8.6.2007. Our results on call options show that generally Black-Scholes model performs better than simple generalized feed-forward networks. On the other hand neural networks performance is improving as the option goes deep in the money and as days to expiration increase, compared to the worsening performance of the BS models. Neural networks seem to correct for the well-known Black-Scholes model moneyness and maturity biases.
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Bibliographic InfoPaper provided by Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies in its series Working Papers IES with number 2009/16.
Length: 27 pages
Date of creation: Apr 2009
Date of revision: Apr 2009
option pricing; neural networks;
Find related papers by JEL classification:
- C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
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