Pricing and Optimization Model of European Options
DOI:
https://doi.org/10.54097/hbem.v21i.14412Keywords:
BS formula; optimized model; European call option; the hidden Markov model.Abstract
Financial market forecasts are gradually gaining the attention of investors. The options market is an integral and important part. Commonly used analysis methods include traditional BS formula and CRR model. This article obtained the transaction data of SP&500 from February 2013 to February 2018, used the data of the first 4 years to train the model, and finally explored the actual price and predicted value of the European call option. To forecast the stock price, a hidden Markov model (HMM) is first applied. And on this basis, improve the parameter estimation in the traditional method BS-CRR, and compare each model with the actual value of the option. Compared with the traditional model, to some extent, the Hidden Markov Model can predict the state of the stock market., get rid of the limitations of the BS model assumptions, predict the direction of the price trend, and verify the feasibility of its application in the financial field.
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