Radial Basis Function Networks for Modeling Option
Posted by : admin on Wednesday, May 14, 2008 2:28amFinancial markets are incredible systems. Thousands of instruments are traded by millions of participants every day, around the world, in a never ending battle to make money. Is it possible to capture the workings of the markets in a mathematical model, and possible to find neglected areas of the markets where a careful application of statistics.
This study is an attempt to apply a new nonlinear statistical modeling technique, Radial Basis Functions, to the rather bold task of stock market prediction and analysis. The success of our approach will ultimately depend on whether or not there are significant nonlinear relationships in the markets that can be discovered empirically.
Certainly numbers and quantitative analysis are invaluable for the accounting side of the financial markets, to “keep score” of how participants are doing. But in the last 30 years the financial world has embraced a decidedly quantitative orientation for many parts of the decision making processes as well, widely adopting quantitative theories such as modern portfolio theory, the Capital Asset Pricing Model, and option pricing theory.




