Selecting the best forecasting-implied volatility model using genetic programming

DOI10.1155/2009/179230MaRDI QIDQ1040021zbMATH OpenOpenAlexWikidataFDO

Authors Wafa Abdelmalek, Sana Ben Hamida, Fathi Abid

Publication date 23 November 2009

Published in Journal of Applied Mathematics and Decision Sciences (Search for Journal in Brave)

Full work available at URL https://eudml.org/doc/229810

Mathematics Subject Classification ID

Review text

Summary: The volatility is a crucial variable in option pricing and hedging strategies. The aim of this paper is to provide some initial evidence of the empirical relevance of genetic programming to volatility's forecasting. By using real data from S\& P500 index options, the genetic programming's ability to forecast Black and Scholes-implied volatility is compared between time series samples and moneyness-time to maturity classes. Total and out-of-sample mean squared errors are used as forecasting's performance measures. Comparisons reveal that the time series model seems to be more accurate in forecasting-implied volatility than moneyness time to maturity models. Overall, results are strongly encouraging and suggest that the genetic programming approach works well in solving financial problems.

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(5)

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• APPLYING THE GENETIC-BASED NEURAL NETWORKS TO VOLATILITY TRADING

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