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Three-Layer Artificial Neural Network for Pricing Multi-Asset European Option

Author

Listed:
  • Zhiqiang Zhou

    (School of Economics and Management, Xiangnan University, Chenzhou 423000, China)

  • Hongying Wu

    (School of Mathematics and Information Science, Xiangnan University, Chenzhou 423000, China)

  • Yuezhang Li

    (School of Economics and Management, Xiangnan University, Chenzhou 423000, China)

  • Caijuan Kang

    (School of Economics and Management, Xiangnan University, Chenzhou 423000, China)

  • You Wu

    (School of Economics and Management, Xiangnan University, Chenzhou 423000, China)

Abstract

This paper studies an artificial neural network (ANN) for multi-asset European options. Firstly, a simple three-layer ANN-3 is established with undetermined weights and bias. Secondly, the time–space discrete PDE of the multi-asset option is given and the corresponding discrete data are fed into the ANN-3. Then, using least squares error as the objective function, the weights and bias of ANN-3 are trained well. Numerical examples are carried out to confirm the stability, accuracy and efficiency. Experiments show the ANN’s relative error is about 0.8 % . This method can be extended into multi-layer ANN- q ( q > 3 ) and extended into American options.

Suggested Citation

  • Zhiqiang Zhou & Hongying Wu & Yuezhang Li & Caijuan Kang & You Wu, 2024. "Three-Layer Artificial Neural Network for Pricing Multi-Asset European Option," Mathematics, MDPI, vol. 12(17), pages 1-22, September.
    • Handle: RePEc:gam:jmathe:v:12:y:2024:i:17:p:2770-:d:1473333
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    References listed on IDEAS

    as
    1. Yuanyang Teng & Yicun Li & Xiaobo Wu & Ya Jia, 2022. "Option Volatility Investment Strategy: The Combination of Neural Network and Classical Volatility Prediction Model," Discrete Dynamics in Nature and Society, Hindawi, vol. 2022, pages 1-39, April.
    2. Hongying Wu & Zhiqiang Zhou & Caijuan Kang & Barbara Martinucci, 2023. "Option Pricing by Willow Tree Method for Generalized Hyperbolic Lévy Processes," Journal of Mathematics, Hindawi, vol. 2023, pages 1-18, October.
    3. Carl Chiarella & Boda Kang & Gunter H Meyer, 2014. "The Numerical Solution of the American Option Pricing Problem:Finite Difference and Transform Approaches," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 8736, December.
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