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Evolutionary Computation in Option Pricing: Determining Implied Volatilities Based on American Put Options

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Evolutionary Computation in Economics and Finance

Part of the book series: Studies in Fuzziness and Soft Computing ((STUDFUZZ,volume 100))

Abstract

In our investigation, Genetic Programming (GP) is used in the context of option pricing. Up to now very few publications exist in this field, the first papers, to our knowledge, come from Chen et al., Chidambaran et al., and Keber [13,14,24,25]. Currently, research activities are increasing in the “GP/Finance”-area, as, e.g., the publications of Allen and Karjalainen as well as Neely et al. show [2,31]. In the context of option valuation a lot of models are not amenable to an exact analytical solution. Such models must be solved either by using numerical procedures or analytical approximations. In our paper we derive analytical approximations for calculating implied volatilities based on American put options using Genetic Programming. Applying our approximations to experimental data sets we can show that the results obtained by our formulas are very close to the numerically calculated ones.

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Author information

Authors and Affiliations

  1. Department of Business Administration, University of Vienna, Austria

    Christian Keber

Authors
  1. Christian Keber
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Editor information

Editors and Affiliations

  1. AI-ECON Research Center, Department of Economics, National Chengchi University, 11623, Taipei, Taiwan, R. O. China

    Shu-Heng Chen

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© 2002 Springer-Verlag Berlin Heidelberg

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Keber, C. (2002). Evolutionary Computation in Option Pricing: Determining Implied Volatilities Based on American Put Options. In: Chen, SH. (eds) Evolutionary Computation in Economics and Finance. Studies in Fuzziness and Soft Computing, vol 100. Physica, Heidelberg. https://doi.org/10.1007/978-3-7908-1784-3_21

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  • DOI: https://doi.org/10.1007/978-3-7908-1784-3_21

  • Publisher Name: Physica, Heidelberg

  • Print ISBN: 978-3-7908-2512-1

  • Online ISBN: 978-3-7908-1784-3

  • eBook Packages: Springer Book Archive

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