article

Forecasting nonnegative option price distributions using Bayesian kernel methods

Authors:

Jaewook LeeAuthors Info & Claims

Expert Systems with Applications: An International Journal, Volume 39, Issue 18

Pages 13243 - 13252

https://doi.org/10.1016/j.eswa.2012.05.077

Published: 01 December 2012 Publication History

Abstract

This paper proposes a novel Bayesian kernel model that can forecast the non-negative distribution of target option prices, which are constrained to be positive. The method utilizes a new transform measure that guarantees the non-negativity of option prices, and can be applied to Bayesian kernel models to provide predictive distributions of option prices. Simulations conducted on the model-generated option data and KOSPI 200 index option data show that the proposed method not only provide a predictive distribution of non-negative option prices, but also preserves the probabilistic distribution of large deviations. We also perform a very extensive empirical study on a large-scale time series of option prices to assess the prediction performance of the proposed method. We find that the method outperforms other state of the arts non-parametric methods in prediction accuracy and is statistically different.

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Cited By

Abdollahi H(2020)An Adaptive Neuro-Based Fuzzy Inference System (ANFIS) for the Prediction of Option PriceInternational Journal of Applied Metaheuristic Computing10.4018/IJAMC.202004010511:2(99-117)Online publication date: 1-Apr-2020
https://dl.acm.org/doi/10.4018/IJAMC.2020040105
Koshiyama AFiroozye NTreleaven P(2019)A derivatives trading recommendation systemInternational Journal of Intelligent Systems in Accounting and Finance Management10.1002/isaf.144526:2(83-103)Online publication date: 12-Aug-2019
https://dl.acm.org/doi/10.1002/isaf.1445
Das SPadhy S(2017)A new hybrid parametric and machine learning model with homogeneity hint for European-style index option pricingNeural Computing and Applications10.1007/s00521-016-2303-y28:12(4061-4077)Online publication date: 1-Dec-2017
https://dl.acm.org/doi/10.1007/s00521-016-2303-y
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Published In

cover image Expert Systems with Applications: An International Journal

Expert Systems with Applications: An International Journal Volume 39, Issue 18

December, 2012

480 pages

ISSN:0957-4174

Issue’s Table of Contents

Copyright © Elsevier Ltd © 2012.

Publisher

Pergamon Press, Inc.

United States

Publication History

Published: 01 December 2012

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Cited By

Abdollahi H(2020)An Adaptive Neuro-Based Fuzzy Inference System (ANFIS) for the Prediction of Option PriceInternational Journal of Applied Metaheuristic Computing10.4018/IJAMC.202004010511:2(99-117)Online publication date: 1-Apr-2020
https://dl.acm.org/doi/10.4018/IJAMC.2020040105
Koshiyama AFiroozye NTreleaven P(2019)A derivatives trading recommendation systemInternational Journal of Intelligent Systems in Accounting and Finance Management10.1002/isaf.144526:2(83-103)Online publication date: 12-Aug-2019
https://dl.acm.org/doi/10.1002/isaf.1445
Das SPadhy S(2017)A new hybrid parametric and machine learning model with homogeneity hint for European-style index option pricingNeural Computing and Applications10.1007/s00521-016-2303-y28:12(4061-4077)Online publication date: 1-Dec-2017
https://dl.acm.org/doi/10.1007/s00521-016-2303-y
Son YByun HLee J(2016)Nonparametric machine learning models for predicting the credit default swapsExpert Systems with Applications: An International Journal10.1016/j.eswa.2016.03.04958:C(210-220)Online publication date: 1-Oct-2016
https://dl.acm.org/doi/10.1016/j.eswa.2016.03.049

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