Stock Option Valuations and Constraint Enforcement Using Neural Networks
| dc.contributor.advisor | Pienaar, Etienne | |
| dc.contributor.author | Nutt, Frans Ignatius | |
| dc.date.accessioned | 2023-04-13T08:33:56Z | |
| dc.date.available | 2023-04-13T08:33:56Z | |
| dc.date.issued | 2022 | |
| dc.date.updated | 2023-04-12T11:33:19Z | |
| dc.description.abstract | Stock option valuations have long been studied, being inherently non-linear financial derivatives. These instruments have a ubiquitous presence in institutional investment practice, and present many favourable and unique benefits to an investment portfolio. Neural Networks on the other hand have become a more familiar concept in recent times. They are by design set to deal with complex, non-linear classification and prediction tasks. Using Neural Networks to predict stock option prices has been studied at length, by various authors in the last 30 years. These studies have considered their relative performance against closed-form pricing solutions like the infamous Black-Scholes-Merton model, as well as in real-world settings. The collective conclusion that is deduced from past literature presents a clear case for their use in finance, albeit that there are some notable pitfalls, like the lack of interpretability and the ability to explicitly enforce certain constraints. Constraints such as option price bounds (upper and lower) and the Put-Call parity, that a stock option's value should satisfy have not been considered in many prior studies. This dissertation sets out to study stock option valuations using Neural Networks with techniques to enforce constraints. First, a functional and appropriately performing Neural Network configuration is derived that outputs European call and put option prices under one model. Thereafter, enforcement of the lower, upper and relative bounds (Put-Call parity) is incorporated into the model. Finally, the Neural Network application is extended to the real-world setting. The performance of the Neural Network model is assessed by means of mean error, as well as percentiles. | |
| dc.identifier.apacitation | Nutt, F. I. (2022). <i>Stock Option Valuations and Constraint Enforcement Using Neural Networks</i>. (). ,Faculty of Commerce ,Centre for Actuarial Research (CARE). Retrieved from http://hdl.handle.net/11427/37695 | en_ZA |
| dc.identifier.chicagocitation | Nutt, Frans Ignatius. <i>"Stock Option Valuations and Constraint Enforcement Using Neural Networks."</i> ., ,Faculty of Commerce ,Centre for Actuarial Research (CARE), 2022. http://hdl.handle.net/11427/37695 | en_ZA |
| dc.identifier.citation | Nutt, F.I. 2022. Stock Option Valuations and Constraint Enforcement Using Neural Networks. . ,Faculty of Commerce ,Centre for Actuarial Research (CARE). http://hdl.handle.net/11427/37695 | en_ZA |
| dc.identifier.ris | TY - Master Thesis AU - Nutt, Frans Ignatius AB - Stock option valuations have long been studied, being inherently non-linear financial derivatives. These instruments have a ubiquitous presence in institutional investment practice, and present many favourable and unique benefits to an investment portfolio. Neural Networks on the other hand have become a more familiar concept in recent times. They are by design set to deal with complex, non-linear classification and prediction tasks. Using Neural Networks to predict stock option prices has been studied at length, by various authors in the last 30 years. These studies have considered their relative performance against closed-form pricing solutions like the infamous Black-Scholes-Merton model, as well as in real-world settings. The collective conclusion that is deduced from past literature presents a clear case for their use in finance, albeit that there are some notable pitfalls, like the lack of interpretability and the ability to explicitly enforce certain constraints. Constraints such as option price bounds (upper and lower) and the Put-Call parity, that a stock option's value should satisfy have not been considered in many prior studies. This dissertation sets out to study stock option valuations using Neural Networks with techniques to enforce constraints. First, a functional and appropriately performing Neural Network configuration is derived that outputs European call and put option prices under one model. Thereafter, enforcement of the lower, upper and relative bounds (Put-Call parity) is incorporated into the model. Finally, the Neural Network application is extended to the real-world setting. The performance of the Neural Network model is assessed by means of mean error, as well as percentiles. DA - 2022_ DB - OpenUCT DP - University of Cape Town KW - Actuarial Science LK - https://open.uct.ac.za PY - 2022 T1 - Stock Option Valuations and Constraint Enforcement Using Neural Networks TI - Stock Option Valuations and Constraint Enforcement Using Neural Networks UR - http://hdl.handle.net/11427/37695 ER - | en_ZA |
| dc.identifier.uri | http://hdl.handle.net/11427/37695 | |
| dc.identifier.vancouvercitation | Nutt FI. Stock Option Valuations and Constraint Enforcement Using Neural Networks. []. ,Faculty of Commerce ,Centre for Actuarial Research (CARE), 2022 [cited yyyy month dd]. Available from: http://hdl.handle.net/11427/37695 | en_ZA |
| dc.language.rfc3066 | eng | |
| dc.publisher.department | Centre for Actuarial Research (CARE) | |
| dc.publisher.faculty | Faculty of Commerce | |
| dc.subject | Actuarial Science | |
| dc.title | Stock Option Valuations and Constraint Enforcement Using Neural Networks | |
| dc.type | Master Thesis | |
| dc.type.qualificationlevel | Masters | |
| dc.type.qualificationlevel | MCom |