Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
386298 | Expert Systems with Applications | 2011 | 7 Pages |
Abstract
This paper presents an efficient currency option pricing model based on support vector regression (SVR). This model focuses on selection of input variables of SVR. We apply stochastic volatility model with jumps to SVR in order to account for sudden big changes in exchange rate volatility. We use forward exchange rate as the input variable of SVR, since forward exchange rate takes interest rates of a basket of currencies into account. Therefore, the inputs of SVR will include moneyness (spot rate/strike price), forward exchange rate, volatility of the spot rate, domestic risk-free simple interest rate, and the time to maturity. Extensive experimental studies demonstrate the ability of new model to improve forecast accuracy.
Keywords
Related Topics
Physical Sciences and Engineering
Computer Science
Artificial Intelligence
Authors
Ping Wang,