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An Improved Particle Swarm Optimization Algorithm for Option Pricing

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Proceedings of the Eighth International Conference on Management Science and Engineering Management

Part of the book series: Advances in Intelligent Systems and Computing ((AISC,volume 281))

Abstract

To prevent premature convergence, an improved particle swarm optimization algorithm (IPSO) is proposed, in which the mean value of global optimal positions in iteration process and the mutation operation are considered. As an application, we apply the IPSO to estimate the implied volatility for European option which is a critical parameter in option pricing. Compared with existed binary particle swarm optimization algorithms, IPSO displays simpler implementation and faster convergence. Further, by using the IPSO, the estimated value of European call option gets more close to its actual value with fewer fluctuation.

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Acknowledgments

This work was supported by the National Natural Science Foundation of China (70831005, 11171237, 11301359, 71101099) and by the Construction Foundation of Southwest University for Nationalities for the subject of Applied Economics (2011XWD-S0202).

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Authors and Affiliations

  1. School of Mathematics and Information Science, Neijiang Normal University, Neijiang, 641112, People’s Republic of China

    Guang He

  2. Department of Mathematics, Sichuan University, Chengdu, 610064, People’s Republic of China

    Guang He, Nanjing Huang & Jue Lu

  3. School of Economics, Southwest University for Nationalities, Chengdu, 610041, People’s Republic of China

    Huiqiang Ma

  4. School of Mathematics, Physics and Information Science, University of Shaoxing, Shaoxing, 312000, People’s Republic of China

    Jue Lu

  5. Business School, Sichuan University, Chengdu, 610064, People’s Republic of China

    Meng Wu

Authors
  1. Guang He
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  2. Nanjing Huang
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  3. Huiqiang Ma
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  4. Jue Lu
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  5. Meng Wu
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Corresponding author

Correspondence to Meng Wu .

Editor information

Editors and Affiliations

  1. Business School, Sichuan University, Chengdu, China

    Jiuping Xu

  2. Depart de Enge Mecânica e Industrial, Faculdade de Ciências e Tecnologia - Universidade Nova de Lisboa (FCT/UNL), Caparica, Portugal

    Virgílio António Cruz-Machado

  3. LeBow College of Business Department of Decision Sciences, Drexel University, Philadelphia, Pennsylvania, USA

    Benjamin Lev

  4. Institute of Operations Research, Karlsruhe Institute ofTechnology (KIT), Karlsruhe, Germany

    Stefan Nickel

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He, G., Huang, N., Ma, H., Lu, J., Wu, M. (2014). An Improved Particle Swarm Optimization Algorithm for Option Pricing. In: Xu, J., Cruz-Machado, V., Lev, B., Nickel, S. (eds) Proceedings of the Eighth International Conference on Management Science and Engineering Management. Advances in Intelligent Systems and Computing, vol 281. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-55122-2_74

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  • DOI: https://doi.org/10.1007/978-3-642-55122-2_74

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  • Publisher Name: Springer, Berlin, Heidelberg

  • Print ISBN: 978-3-642-55121-5

  • Online ISBN: 978-3-642-55122-2

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