Pricing vanilla options using artificial neural networks: Application to the South African market

Pricing vanilla options using artificial neural networks: Application to the South African market

In this paper, a feed-forward artificial neural network (ANN) is used to price Johannesburg Stock Exchange (JSE) Top 40 European call options using a constructed implied volatility surface. The prices generated by the ANN were compared to the prices obtained using the Black-Scholes (BS) model. It wa...

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Bibliographic Details
Main Authors: Ryno du Plooy, Pierre J. Venter
Format: Article
Language:English
Published: Taylor & Francis Group 2021-01-01
Series:Cogent Economics & Finance
Subjects:
artificial intelligence
european call options
financial derivatives
implied volatility
johannesburg stock exchange (jse)
machine learning
neural networks
Online Access:http://dx.doi.org/10.1080/23322039.2021.1914285
Description
Summary:In this paper, a feed-forward artificial neural network (ANN) is used to price Johannesburg Stock Exchange (JSE) Top 40 European call options using a constructed implied volatility surface. The prices generated by the ANN were compared to the prices obtained using the Black-Scholes (BS) model. It was found that the pricing performance of the ANN significantly improves when the number of training samples are increased and that ANNs are able to price European call options in the South African market with a high degree of accuracy.
ISSN:2332-2039

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