Predicting Option Prices and Volatility with High Frequency Data Using Neural Network

Abstract

Neural network utilizes the huge amount of data for analysis and prediction. This paper predicts option prices and volatility using neutral network based on high frequency intraday data. We focus on short term prediction because option prices and volatility in fact are very volatile and almost impossible to predict. We find that neural network is able to predict option prices and volatility by using predictors constructed from the prices of option and its underlining index, especially in short term which is what practitioners care about more in practice.