Option Pricing by Means of Genetic Programming: How to Find a Closed-form Solution for the Price of European Call Options?

Heigl, Andreas

ISBN 10: 3836485206 / ISBN 13: 9783836485203

Published by VDM Verlag Dr. Müller, 2008

About this Item

Seller Inventory # I-9783836485203

Bibliographic Details

• Title: Option Pricing by Means of Genetic Programming: How to Find a Closed-form Solution for the Price of European Call Options?
• Publisher: VDM Verlag Dr. Müller
• Publication Date: 2008
• Language: English
• ISBN 10: 3836485206
• ISBN 13: 9783836485203
• Binding: Soft cover
• Condition: New

About this title

Synopsis

This master thesis describes how to price options by means of Genetic Programming. The underlying model is the Generalized Autoregressive Conditional Heteroskedastic (GARCH) asset return process. The goal is to find a closed-form solution for the price of European call options where the underlying securities follow a GARCH process. Genetic Programming is used to generate the pricing function from the data. Genetic Programming is a method of producing programs just by defining a problemdependent fitness function. The resulting equation is found via a heuristic algorithm inspired by natural evolution. To ensure that a good configuration setting is used, preliminary testing of many different settings has been done, suggesting that simpler configurations are more successful in this environment. The resulting equation can be used to calculate the price of an option in the given range with minimal errors. This equation is well behaved and can be used in standard spread sheet programs. It offers a wider range of utilization or a higher accuracy, respectively than other existing approaches.

About the Author

DI Mag. Andreas Heigl studied Computer Sciences at the Vienna University of Technology and Business Administration at the Vienna University of Economics. 2004 he started as Consultant at Schwabe, Ley & Greiner in Vienna. His activities emphasized on treasury, reporting and risk management. Currently he is treasurer of a-heat AG.