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Machine learning solutions to challenges in finance: An application to the pricing of financial products

Gan, Lirong; Wang, Huamao; Yang, Zhaojun

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Authors

Lirong Gan

Zhaojun Yang



Contributors

Abstract

© 2020 Elsevier Inc. The recent fast development of machine learning provides new tools to solve challenges in many areas. In finance, average options are popular financial products among corporations, institutional investors, and individual investors for risk management and investment because average options have the advantages of cheap prices and their payoffs are not very sensitive to the changes of the underlying asset prices at the maturity date, avoiding the manipulation of asset prices and option prices. The challenge is that pricing arithmetic average options requires traditional numerical methods with the drawbacks of expensive repetitive computations and non-realistic model assumptions. This paper proposes a machine-learning method to price arithmetic and geometric average options accurately and in particular quickly. The method is model-free and it is verified by empirical applications as well as numerical experiments.

Citation

Gan, L., Wang, H., & Yang, Z. (2020). Machine learning solutions to challenges in finance: An application to the pricing of financial products. Technological Forecasting and Social Change, 153, Article 119928. https://doi.org/10.1016/j.techfore.2020.119928

Journal Article Type Article
Acceptance Date Jan 20, 2020
Online Publication Date Jan 25, 2020
Publication Date Apr 1, 2020
Deposit Date Apr 7, 2020
Publicly Available Date Jul 26, 2021
Journal Technological Forecasting and Social Change
Print ISSN 0040-1625
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 153
Article Number 119928
DOI https://doi.org/10.1016/j.techfore.2020.119928
Keywords Management of Technology and Innovation; Applied Psychology; Business and International Management
Public URL https://nottingham-repository.worktribe.com/output/4267030
Publisher URL https://www.sciencedirect.com/science/article/pii/S0040162519312399?via%3Dihub
Additional Information This article is maintained by: Elsevier; Article Title: Machine learning solutions to challenges in finance: An application to the pricing of financial products; Journal Title: Technological Forecasting and Social Change; CrossRef DOI link to publisher maintained version: https://doi.org/10.1016/j.techfore.2020.119928; Content Type: article; Copyright: © 2020 Elsevier Inc. All rights reserved.

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