master thesis option pricing

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Master's Degree Thesis: Applying Reinforcement Learning to Option Pricing and Hedging

zstoi/Thesis

Folders and files, repository files navigation, applying reinforcement learning to option pricing and hedging.

This is a slightly revised version of the thesis submitted in December 2022 in partial fulfillment of the requirements for the degree of Master of Science in Business Administration . All errors and omissions are my own responsibility.

This thesis provides an overview of the recent advances in reinforcement learning in pricing and hedging financial instruments, with a primary focus on a detailed explanation of the Q-Learning Black-Scholes approach, introduced by Halperin (2017). This reinforcement learning approach bridges the traditional Black and Scholes (1973) model with novel artificial intelligence algorithms, enabling option pricing and hedging in a completely model-free and data-driven way. This paper also explores the algorithm’s performance under different state variables and scenarios for a European put option. The results reveal that the model is an accurate estimator under different levels of volatility and hedging frequency. Moreover, this method exhibits robust performance across various levels of option’s moneyness. Lastly, the algorithm incorporates proportional transaction costs, indicating diverse impacts on profit and loss, affected by different statistical properties of the state variables.

Full thesis: Applying Reinforcement Learning to Option Pricing and Hedging.pdf

This thesis is also available at https://ssrn.com/abstract=4546371 and https://arxiv.org/abs/2310.04336

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Master's Thesis: Volatility Modelling in Option Pricing and its Impact on Payoff Replication Performance

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Frederic Vrins

This paper examines the empirical performance of various option pricing models. The models are tested in the same way market practitioners use them: the models are fitted to all the market traded liquid option prices and are recalibrated whenever the model is used to mark-to-market the option under consideration or to set up hedging portfolios. The test is based on their effectiveness of hedging exotic options. Since exotic options are only traded in the over-the-counter market, historical data are unavailable, and the traditional approach of comparing market prices with model prices can no longer be used. We propose a new methodology to overcome this difficulty: model performance is based on accuracy of hedging strategies. Using historical S&P 500 futures option prices we show that the so-called practitioner’s Black-Scholes model performs better relative to other alternative models for valuing barrier options, but worse for valuing compound options. Our results also indicate that m...

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This study explores the impact of stochastic volatility in option pricing. To be more specific, we compare the option pricing performance between stochastic volatility option pricing model, namely, Heston option pricing model and standard Black-Scholes option pricing. Our finding, based on the market price of SET50 index option between May 2011 and September 2020, demonstrates stochastic volatility of underlying asset return for all level of moneyness. We find that both deep in the money and deep out of the money option exhibit higher volatility comparing with out of the money, at the money, and in the money option. Hence, our finding confirms the existence of volatility smile in Thai option markets. Further, based on calibration technique, the Heston option pricing model generates smaller pricing error for all level of moneyness and time to expiration than standard Black-Scholes option pricing model, though both Heston and Black-Scholes generate large pricing error for deep-in-the-...

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In this work, I develop a new volatility measure; the volatility implied by price changes in option contracts and their underlyings. I refer to this as implied price change volatility. First, I examine the time series behavior of implied price change volatility and investigate possible moneyness and maturity effects. I compare these characteristics to those of the usual implied volatility measure and the historical volatility of the S&P 500 index. Then, I investigate the performance of the implied price change volatility in a regression setup and in hedging applications. I compare the performance of hedges using daily updated implied price change volatility and implied volatility and their averages. Data used in this study are tick-data on pit traded S&P 500 futures options and their underlying from 1998 to 2006. I find that implied price change volatility has similar time series behavior and moneyness and maturity effects as implied volatility. However, the price change volatility ...

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Artificial Intelligence for Option Pricing

Master’s thesis in mathematical sciences, specialisation in finance mathematics, collections.

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File will be publicly available after 2024-04-06 .

Options and their pricing : the Black-Scholes model

• Masters Thesis
• Moss, Cynthia
• Gold, Jerrold M.
• Vakilian, Ramin
• Breen, Stephen
• Mathematics
• California State University, Northridge
• Dissertations, Academic -- CSUN -- Mathematics.
• 2016-08-25T14:38:02Z
• http://hdl.handle.net/10211.3/175808
• by Cynthia Moss
• Includes bibliographical references (leaf 62)
• California State University, Northridge. Department of Mathematics.

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Dissertations / Theses on the topic 'Option trading strategies'

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Wang, Tong Tong. "Analyzing and simulating stock option trading strategies." Thesis, University of Macau, 2000. http://umaclib3.umac.mo/record=b1636264.

Ribeiro, André Manuel da Silva. "Option pricing and optimal trading strategies for holding firms." Master's thesis, Instituto Superior de Economia e Gestão, 2010. http://hdl.handle.net/10400.5/2445.

Magnusson, Lukas. "Dispersion Trading : Construction and Evaluation." Thesis, KTH, Industriell ekonomi och organisation (Inst.), 2013. http://urn.kb.se/resolve?urn=urn:nbn:se:kth:diva-123733.

Coufalík, Jan. "Opční strategie a oceňování měnových opcí." Master's thesis, Vysoká škola ekonomická v Praze, 2011. http://www.nusl.cz/ntk/nusl-199783.

Sonono, Masimba Energy. "Applications of conic finance on the South African financial markets /| by Masimba Energy Sonono." Thesis, North-West University, 2012. http://hdl.handle.net/10394/9206.

Fransson, Oskar, and Almqvist Henrik Mark. "Trading Volatility : Trading strategies based on the VIX term structure." Thesis, Umeå universitet, Företagsekonomi, 2020. http://urn.kb.se/resolve?urn=urn:nbn:se:umu:diva-172989.

Mönch, Burkart. "Strategic trading in illiquid markets /." Berlin [u.a.] : Springer, 2005. http://www.loc.gov/catdir/enhancements/fy0663/2005922554-d.html.

Macret, Deborah Zilberman. "Relação entre volume e volatilidade no mercado acionário brasileiro." reponame:Repositório Institucional do FGV, 2018. http://hdl.handle.net/10438/24823.

Chen, Ming-ying, and 陳明瑩. "Option Trading Strategies with Transaction Costs." Thesis, 2007. http://ndltd.ncl.edu.tw/handle/41805707557609852735.

Bagić, Iva. "Single and combined option trading strategies." Master's thesis, 2011. http://hdl.handle.net/10071/4044.

楊靜宜. "Option Trading Strategies with Integer Linear Programming." Thesis, 2004. http://ndltd.ncl.edu.tw/handle/51606858789417568198.

Hung-Ying, Tang, and 湯惠英. "Trading strategies of Taiwan Index Option Volatility." Thesis, 2008. http://ndltd.ncl.edu.tw/handle/99140124913526307415.

Yang, Cheng-Feng, and 楊承峯. "Volatility Trading Strategies for US Stock Option Market." Thesis, 2013. http://ndltd.ncl.edu.tw/handle/44721520220221157786.

Yang, Tsung-Ta, and 楊宗達. "The Impact of Volatility Estimation on Option Trading Strategies." Thesis, 2019. http://ndltd.ncl.edu.tw/handle/3fqa8f.

Hsu, Chia-Wei, and 許家瑋. "Using Option and Stock Volume Ratio as Trading Strategies." Thesis, 2016. http://ndltd.ncl.edu.tw/handle/59602911037853725661.

Huang, Yu-Bin, and 黃裕斌. "Application of Extreme Value Theory for Option Trading Strategies." Thesis, 2006. http://ndltd.ncl.edu.tw/handle/26726626473356117969.

Chen, Ming-te, and 陳明德. "A study on profitability of option trading strategies-with TXO." Thesis, 2009. http://ndltd.ncl.edu.tw/handle/66975882898752794241.

Lee, Lu-Han, and 李如翰. "The Optimal Option Trading Strategies under Different Volatilities and Interest Rate." Thesis, 2009. http://ndltd.ncl.edu.tw/handle/34144811827133516897.

Cho, I.-Wei, and 卓奕瑋. "The Relative Trading Strategies Research of the Volatility Index of TAIFEX Option." Thesis, 2008. http://ndltd.ncl.edu.tw/handle/70862740812509076676.

Humphreys, Mark. "Covered call trading strategies in the South African retail equity market." Thesis, 2015. http://hdl.handle.net/10539/17047.

Kau, Un-Hoei, and 高妏惠. "The Effect of Paying Cash Dividend on Taiwan Index Option and Related Trading Strategies." Thesis, 2006. http://ndltd.ncl.edu.tw/handle/34880043452940385075.

Lin, Rou-ping, and 林柔萍. "The research of Trading Strategies of Implied Volatility Spreads in Taiwan Index Option market." Thesis, 2015. http://ndltd.ncl.edu.tw/handle/4f3zqc.

H124410033, WU PO, and 吳柏昇. "The Performance of Trading Strategies based on the Ratio of Option and Stock Volume." Thesis, 2018. http://ndltd.ncl.edu.tw/handle/mjd7dn.

Wu, Hsiao-Sung, and 吳曉松. "The Study of Insider Trading Strategies with Asymmetric Information in the Stock and Option Markets." Thesis, 2006. http://ndltd.ncl.edu.tw/handle/25639329810360116726.

Kuo, Wen-jui, and 郭文瑞. "The Feasibility Study of “Filter Rules’ Trading Strategies”－Applying Option Volatility Implied from TAIFEX Futures Contracts." Thesis, 2004. http://ndltd.ncl.edu.tw/handle/12276015651252925028.

Lin, Jung-hui, and 林榮輝. "Design of Options Trading Strategies Based on AiSM." Thesis, 2006. http://ndltd.ncl.edu.tw/handle/6m7aq8.

Chen, Wei, and 陳威. "Pricing and Trading Strategies of Euro FX Options." Thesis, 2016. http://ndltd.ncl.edu.tw/handle/11895161641829965409.

LIN, SIANG-JYU, and 林祥裾. "Trading Strategies using Indicator Based on Options Premium." Thesis, 2008. http://ndltd.ncl.edu.tw/handle/40833589104940080496.

Wu, Cheng-Yu, and 吳正玉. "The trading strategies and commoditization of the TAIEX index options." Thesis, 2011. http://ndltd.ncl.edu.tw/handle/55633488704886398005.

Lien, Shih-Chieh, and 連士傑. "A Research on TAIEX Forecast and TAIEX Options Trading Strategies." Thesis, 2007. http://ndltd.ncl.edu.tw/handle/36015082947400960869.

ZHANG, YAN-LING, and 張晏玲. "The Options Trading Strategies With Volatility Forecasting Recruiting Sentiment Indicators." Thesis, 2017. http://ndltd.ncl.edu.tw/handle/g7k58n.

Huang, Hao-Hsuan, and 黃浩軒. "Approximate arbitrage trading strategies for cross-month futures and options." Thesis, 2018. http://ndltd.ncl.edu.tw/handle/eu7aa5.

Li, Mei-Chun, and 李美君. "An Empirical Study on Building Trading Strategies for TAIEX Options." Thesis, 2016. http://ndltd.ncl.edu.tw/handle/6zep5w.

Huang-MingChen and 陳鍠銘. "Options Trading and Hedging Strategies Based on Market Data Analytics." Thesis, 2019. http://ndltd.ncl.edu.tw/handle/4b67s2.

Dong, Yuan-Cheng, and 董元晟. "A Study of Appling VIX Index to Options Trading Strategies." Thesis, 2009. http://ndltd.ncl.edu.tw/handle/s5wssr.

Huang, Mei-hsueh, and 黃美雪. "A study on profitability of trading strategies in TAIEX options." Thesis, 2007. http://ndltd.ncl.edu.tw/handle/78737353552587319624.

Su, Yi-Cheng, and 蘇宜政. "The Empirical Study of Options Volatility Trading Strategies under Delta-Neutral." Thesis, 2010. http://ndltd.ncl.edu.tw/handle/97049536544938787597.

Chia-JungLu and 呂佳蓉. "Developing Trading and Hedging Strategies for Options Based on Market Data." Thesis, 2016. http://ndltd.ncl.edu.tw/handle/40911705631903720534.

"An ex-post analysis of trading strategies in Hang Seng Index options." Chinese University of Hong Kong, 1994. http://library.cuhk.edu.hk/record=b5888071.

Huang, Chih-Hsuan, and 黃智萱. "A Study on the Profitability of Options Taiwan Stock Index Trading Strategies." Thesis, 2014. http://ndltd.ncl.edu.tw/handle/44714725969893538010.

Lin, Chiu-Chun, and 林秋君. "An Empirical Study of Spread Trading Strategies Model for Taiwan Stock Index Options." Thesis, 2005. http://ndltd.ncl.edu.tw/handle/t3dq8q.

Chun-Tung, Liu, and 劉峻彤. "Intraday Trading Strategies of Options Based on the Technical Analysis of Futures Price." Thesis, 2014. http://ndltd.ncl.edu.tw/handle/58135691264579262642.

Pereira, Catarina da Silva Ferro Costa. "Testing high volatility expectation trades on macroeconomic and political events of 2016." Master's thesis, 2017. http://hdl.handle.net/10071/15995.

Wen, Chien-Sheng, and 溫建盛. "The Performance of Trading Strategies Based onDeviations from Put-Call Parity of Stock Options." Thesis, 2019. http://ndltd.ncl.edu.tw/handle/78n24p.

Chiu, Chun-Neng, and 邱俊能. "An Empirical Study on Building Out of The Money Trading Strategies for TAIEX Weekly Options." Thesis, 2018. http://ndltd.ncl.edu.tw/handle/zk9646.

Wang, Jen-Chieh, and 王仁傑. "A study of Trading Strategies on Optimization Hedging Portfolio of TAIEX Futures and TAIEX Options." Thesis, 2017. http://ndltd.ncl.edu.tw/handle/rn2ff8.

YAO, YIN-LUO, and 姚吟濼. "The Profitability of TAIEX Weekly Options with Dynamic Trading Strategies- An Application of Random Forest Algorithm." Thesis, 2018. http://ndltd.ncl.edu.tw/handle/54cq9w.

Chiu, Hsin Yu, and 邱信瑜. "Two Essays on the Disposition Effect of the Options Market and Similarity-based Futures Trading Strategies." Thesis, 2016. http://ndltd.ncl.edu.tw/handle/07887701598918365629.

Hsieh, Jia_Jiun, and 謝家鈞. "The Research of Taiwan 50 index Fund and Mini Taiwan stock index Futures、Options hedge trading strategies." Thesis, 2008. http://ndltd.ncl.edu.tw/handle/36154878922112247120.

• Earning the MA — Thesis Option

This section applies only if you want to earn an MA by writing a master’s thesis for your first comps, rather than waiting to pass your second comps before applying for the MA degree. In most cases the master's thesis will be an empirical paper which you may use as one of your comps with the approval of your comprehensive exam committee. (A separate defense for the comps is not required.) A theoretical paper or analytic review of a literature may serve as an master's thesis with the approval of your thesis advisor. If you write a thesis you will still need to do a second comps, unless you leave the program with your MA (“terminal MA degree”).

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Upon preliminary approval of the completed thesis by your committee, the GPD will schedule a thesis defense which will also serve as the comprehensive exam defense. This exam is public. The committee may approve the thesis and/or recommend revisions. After passing this exam you should submit the thesis to the Graduate School in proper format via ScholarWorks , as well as a paper copy to the Sociology Graduate Office.

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