An Intelligent Approach for Option Pricing

Vijayalaxmi, . and Adiga, Chandrashekara S and Joshi, H G (2017) An Intelligent Approach for Option Pricing. Journal of Economics and Finance. pp. 92-96. ISSN 23215925

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Abstract

Option pricing is one of the exigent and elementary problems of computational finance. The paper aims to determine the option price and time to exercise the option. In order to optimize the model, Ant Colony Optimization Technique (ACO) has been used here and complete simulation is done using MATLAB 2015a simulation environment. Emphasis is also given on comparing the proposed method with the other existing models and come up with an optimum model for option pricing which will benefit traders and risk managers to obtain the computed results very fast with high accuracies. The algorithm which uses ACO technique has three important steps. Initially it starts by injecting ants from the valuation date. This is considered to be the root node. It can acquire whichever path based on arbitrary behavior. Later, individual ants compute the payoff at each node based on a set expression. As soon as an ant finds a value, it updates the pheromone concreteness leading to the node. Finally updating the pheromone on the path makes it more attractive for other ants to explore in the neighboring areas

Item Type: Article
Uncontrolled Keywords: Financial derivatives, Option pricing, Ant Colony Optimization
Subjects: Engineering > MIT Manipal > Electrical and Electronics
Depositing User: MIT Library
Date Deposited: 27 Mar 2017 10:58
Last Modified: 27 Mar 2017 10:58
URI: http://eprints.manipal.edu/id/eprint/148580

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