Option Pricing Based on Neural Stochastic Differential Equations

Abstract

Firstly, based on the Black-Scholes stock price model, the neural stochastic differential equation (NSDE) model was established by parameterizing the asset return rate and volatility as a drift network and a diffusion network, respectively. Secondly, in the empirical analysis, the underlying asset as a single stock option was used as the research object, and real stock data was used for the network training and testing. The experimental results show that the NSDE model can overcome the defects of the constant assumption of the Black-Scholes model. Finally, for the case where the price of the underlying asset of the option was unobservable, we proposed that the price of any target option and the price of a known option could be constrained within the Wasserstein distance of their risk-neutral equivalent martingale measure, and theoretically proved the method.