Three-Layer Artificial Neural Network for Pricing Multi-Asset European Option

Zhiqiang Zhou, Hongying Wu (), Yuezhang Li, Caijuan Kang and You Wu
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Zhiqiang Zhou: School of Economics and Management, Xiangnan University, Chenzhou 423000, China
Hongying Wu: School of Mathematics and Information Science, Xiangnan University, Chenzhou 423000, China
Yuezhang Li: School of Economics and Management, Xiangnan University, Chenzhou 423000, China
Caijuan Kang: School of Economics and Management, Xiangnan University, Chenzhou 423000, China
You Wu: School of Economics and Management, Xiangnan University, Chenzhou 423000, China

Mathematics, 2024, vol. 12, issue 17, 1-22

Abstract: This paper studies an artificial neural network (ANN) for multi-asset European options. Firstly, a simple three-layer ANN-3 is established with undetermined weights and bias. Secondly, the time–space discrete PDE of the multi-asset option is given and the corresponding discrete data are fed into the ANN-3. Then, using least squares error as the objective function, the weights and bias of ANN-3 are trained well. Numerical examples are carried out to confirm the stability, accuracy and efficiency. Experiments show the ANN’s relative error is about 0.8 % . This method can be extended into multi-layer ANN- q ( q > 3 ) and extended into American options.

Keywords: multi-asset option; European option; high-dimensional PDE; artificial neural network; three layers (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2024
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