Artificial Neural Network Enhanced Parametric Option Pricing

Abstract

In this paper we explore ways that alleviate problems of nonparametric (artificial neural networks) and parametric option pricing models by combining the two. The resulting enhanced network model is compared to standard artificial neural networks and to parametric models with several historical and implied parameters. Empirical results using S\&P 500 index call options strongly support our approach.Option pricing, implied volatilities, implied parameters, artificial neural networks, optimization