English, Article edition: APPLYING THE GENETIC-BASED NEURAL NETWORKS TO VOLATILITY TRADING SHINN-WEN WANG

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Bookmark: http://trove.nla.gov.au/version/132928
Physical Description
  • article
Language
  • English

Edition details

Title
  • APPLYING THE GENETIC-BASED NEURAL NETWORKS TO VOLATILITY TRADING
Author
  • SHINN-WEN WANG
Physical Description
  • article
Notes
  • The Black-Scholes options pricing model is widely applied in various options contracts, including contract design, trading, assets evaluation, and enterprise value estimation, etc. Unfortunately, this theoretical model limited by the influences of many unexpected real world phenomena due to six unreasonable assumptions. If we were to soundly take these phenomena into account, the opportunity to gain an excess return would be created. This research therefore combines both the remarkable effects caused by the implied volatility smile (or skew) and the tick-jump discrepancy between the underlying and derivative prices to establish a two-phase options arbitrage model using a genetic-based neural network (GNN). Using evidence from the warrant market in Taiwan, it is shown that the GNN model with arbitrage operations is superior in terms of performance to the original Black-Scholes-based arbitrage model. The GNN model is found to be suitable for application to various options markets as the valuation factors are modified. This paper helps to integrate the theoretical model with important practical considerations.
  • Black-Scholes, volatility skews, warrant, arbitrage, GNN
  • RePEc:wsi:nmncxx:v:01:y:2005:i:02:p:285-293
Language
  • English
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