Option pricing with artificial neural network in a time dependent market

Subject Areas : Financial Mathematics

Mehran Araghi ¹ , Elham Dastranj ² , Abdolmajid Abdolbaghi Ataabadi ³ , Hossein Sahebi Fard ⁴

1 - Department of Mathematics, Faculty of Mathematical Sciences, Shahrood University of Technology, Shahrood, Semnan, Iran
2 - Department of Mathematics, Faculty of Mathematical Sciences, Shahrood University of Technology, Shahrood, Semnan, Iran
3 - Department of Management, Industrial Engineering, Amp and Management Sciences, Shahrood University of Technology
4 - Department of Mathematics, Faculty of Mathematical Sciences, Shahrood University of Technology, Shahrood, Semnan, Iran.

Received: 2023-03-09 Accepted : 2024-02-23 Published : 2024-02-26

Keywords: Option pricing, Mikhailov and Nogel model, Artificial neural network, Activation function,

Abstract :

In this article, the pricing of option contracts is discussed using the Mikhailov and Nogel model and the artificial neural network method. The purpose of this research is to investigate and compare the performance of various types of activator functions available in artificial neural networks for the pricing of option contracts. The Mikhailov and Nogel model is the same model that is dependent on time. In the design of the artificial neural network required for this research, the parameters of the Mikhailov and Nogel model have been used as network inputs, as well as 700 data from the daily price of stock options available in the Tehran Stock Exchange market (in 2021) as the net-work output. The first 600 data are considered for learning and the remaining data for comparison and conclusion. At first, the pricing is done with 4 commonly used activator functions, and then the results of each are com-pared with the real prices of the Tehran Stock Exchange to determine which item provides a more accurate forecast. The results obtained from this re-search show that among the activator functions available in this research, the ReLU activator function performs better than other activator functions.

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