A Nonparametric Approach to Pricing and Hedging Derivative Securities via Learning Networks

We propose a nonparametric method for estimating derivative financial asset pricing formulae using learning networks. To demonstrate feasibility, we first simulate Black-Scholes option prices and show that learning networks can recover the Black-Scholes formula from a two-year training set of daily options prices, and that the resulting network formula can be used successfully to both price and delta-hedge options out-of-sample. For comparison, we estimate models using four popular methods: ordinary least squares, radial basis functions, multilayer perceptrons, and projection pursuit. To illustrate practical relevance, we also apply our approach to S&P 500 futures options data from 1987 to 1991.

Some Aspects of Pattern Recognition by Computer

A computer may gather a lot of information from its environment in an optical or graphical manner. A scene, as seen for instance from a TV camera or a picture, can be transformed into a symbolic description of points and lines or surfaces. This thesis describes several programs, written in the language CONVERT, for the analysis of such descriptions in order to recognize, differentiate and identify desired objects or classes of objects in the scene. Examples are given in each case. Although the recognition might be in terms of projections of 2-dim and 3-dim objects, we do not deal with stereoscopic information. One of our programs (Polybrick) identifies parallelepipeds in a scene which may contain partially hidden bodies and non-parallelepipedic objects. The program TD works mainly with 2-dimensional figures, although under certain conditions successfully identifies 3-dim objects. Overlapping objects are identified when they are transparent. A third program, DT, works with 3-dim and 2-dim objects, and does not identify objects which are not completely seen. Important restrictions and suppositions are: (a) the input is assumed perfect (noiseless), and in a symbolic format; (b) no perspective deformation is considered. A portion of this thesis is devoted to the study of models (symbolic representations) of the objects we want to identify; different schemes, some of them already in use, are discussed. Focusing our attention on the more general problem of identification of general objects when they substantially overlap, we propose some schemes for their recognition, and also analyze some problems that are met.