## An adaptive evolutionary approach to option pricing via genetic programming (1998)

Venue: | Proceedings of the 6th International Conference on Computational Finance |

Citations: | 12 - 0 self |

### BibTeX

@INPROCEEDINGS{Chidambaran98anadaptive,

author = {N. K. Chidambaran and Chi-wen Jevons Lee and Joaquin R. Trigueros},

title = {An adaptive evolutionary approach to option pricing via genetic programming},

booktitle = {Proceedings of the 6th International Conference on Computational Finance},

year = {1998},

pages = {38--41},

publisher = {Morgan Kaufmann}

}

### Years of Citing Articles

### OpenURL

### Abstract

Please do not quote without permission * Chidambaran is visiting at NYU, on leave from Tulane. Lee holds joint appointments at Tulane and HKUST. Trigueros is at Tulane. We are grateful for the comments from participants at seminars at Tulane

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(Show Context)
Citation Context ...ikely. Their rankings are: 1) Intertemporal dependence models (ARCH, GARCH), 2) Student t, 3) Generalized mixture of normal distributions, 4) Poisson jump, and 5) Stationary normal. 1sadvocate GARCH (=-=Bollerslev 1986-=-) processes. 3 While closed-form solutions for the option price cannot be obtained for all these models, pricing formulas can be obtained numerically. The difficulty in finding an analytical closed-fo... |

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(Show Context)
Citation Context ...ption pricing methods such as GARCH models require assumptions of the underlying process and parameter values. 15sTo take advantage of Genetic Programming’s ability to learn with small training sets (=-=Koza 1992-=-) and reduce computational time, we tested its performance using random samples of 5% and 25% of the options generated in the simulation. We found that the training formulas with the smaller data sets... |

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(Show Context)
Citation Context ...ware of the true nature of the underlying stock price process when using the Black-Scholes model to price option. The estimated call option value with the modified Black-Scholes model is, therefore, (=-=Merton 1976-=-): 2 2 C = BS( S, X, r, σ + λδ , τ) (8) Panels B and C of Table III present the size of the training sets used and the algorithm training criteria. We implement an additional step in determining the s... |

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Implied Binomial Trees
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(Show Context)
Citation Context ...that do not hold in the real world and model prices exhibit systematic biases from observed option prices. While many extensions and alternative models have been suggested, none seems to be complete (=-=Rubinstein, 1997-=-). We propose a new methodology of Genetic Programming for better approximating the elusive relationship between the option price and its contract terms and properties of the underlying stock price. T... |

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1 | Explaining the facts with adaptive agents - Lettau - 1997 |