Applications of Neural Networks in Options Trading

What are options?

Why are options important?

An option is a financial derivative giving the buyer the right—but not the obligation—to buy or sell the underlying asset at a specific price on a certain date

• In the United States alone, the option market is worth 19 billion USD
• Options can be used for speculation and to hedge risk

What are neural networks?

• Neural networks or Artificial neural networks (ANNS) are learning algorithms that are comprised of multiple node layers

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• They contain one input layer, one or more hidden layers, and an output layer.

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• Each node, or artificial neuron, connects to another and has an associated weight and threshold.

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• If the output of any individual node is above the specified threshold value, that node is activated, sending data to the next layer of the network.

Once these learning algorithms are fine-tuned for accuracy, they are powerful tools in computer science and artificial intelligence, allowing the classification and clustering of data at a high velocity.

Neural networks rely on training data to learn and improve their accuracy over time.

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Already, neural networks have seen wide applications in different industries such as:

• Healthcare
• Manufacturing
• e-comerce
• and many more.

Implementation of machine learning has shown high success rates.

Are neural networks better than conventional techniques?

Should neural networks be used in option trading?

How can neural networks be applied?

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