Applying Extending Classifier System to Develop an Option-Operation Suggestion Model of Intraday Trading – An Example of Taiwan Index Option
This novel study developed an option-operation suggestion model by applying integrated artificial intelligence technique, extending learning classifier system (XCS), which incorporates reinforcement machine learning method to the dynamical problems to the behavior finance. Due to the history of Behavior Finance, many researches have found that the shape of stock trend is not following random walk model, but the repeated trading patterns exist which are referred to as investors experiences. Furthermore, some classical researches have been merely adopted traditional artificial intelligence to analyze the result. Those methodologies are not sufficiently to resolve the dynamical problem, such as economical trading behaviors. Therefore, the model has been proposed concerning intraday trading but avoiding the system risk in the short-term position to benefit investors. By dynamic learning ability of XCS and general population features, the output operation suggestions could be obtained as a reference strategy for investors to predict the index option trend. As an example of Taiwan Index option, the results of the accuracy and accumulative profit have been exhibited remarkable outcome, and so as the simulations of short term prediction with 10-minute and 20-minute tick data.
KeywordsOption Price System Risk Implied Volatility Random Walk Model Training Population
Unable to display preview. Download preview PDF.
- 2.Butz, M., Sasry, K., Goldberg, D.: Strong, Stable and Reliable Fitness Pressure in XCS due to Tournament Selection. IlliGAL Report No. 2003027 (2003)Google Scholar
- 7.Holland, J.: Escape Brittleness: the Possibilities of General Purpose Learning Algorithms Applied to Parallel Rule-based Systems. Machine Learning, an Artificial Intelligence Approach 2, 593–623 (1986)Google Scholar
- 8.Hsieh, W.L.: Market Integration, Price Discovery, and Information Transmission in Taiwan Index Future Market. Journal of Financial Studies 10, 1–31 (2002)Google Scholar
- 9.Yao, J., Li, Y., Tan, C.L.: Option Price Forecasting Using Neural Networks. The International Journal of Management Science 28, 455–466 (2000)Google Scholar
- 10.Lantane, H., Rendleman, R.: Standard Deviations of Stock Price Ratios Implied in Options Price. Journal of Finance 31, 361–381 (1976)Google Scholar
- 11.Liao, P.Y., Chen, J.S.: Dynamic Trading Strategy Learning Model Using Learning Classifier Systems. In: Proceedings of the 2001 Congress on Evolutionary Computation, vol. 2, pp. 783–789 (2001)Google Scholar
- 12.Lin, J.Y., Cheng, C.P., Tsai, W.C., Chen, A.P.: Using Learning Classifier System for Making Investment Strategies Based on Institutional Analysis. Table of Contents AIA, 765–769 (2004)Google Scholar