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Can we imitate the principal investor's behavior to learn option price?. (arXiv:2105.11376v2 [q-fin.PR] UPDATED)
Jan. 14, 2022, 2:11 a.m. | Xin Jin
cs.LG updates on arXiv.org arxiv.org
This paper presents a framework of imitating the principal investor's
behavior for optimal pricing and hedging options. We construct a
non-deterministic Markov decision process for modeling stock price change
driven by the principal investor's decision making. However, low
signal-to-noise ratio and instability that are inherent in equity markets pose
challenges to determine the state transition (stock price change) after
executing an action (the principal investor's decision) as well as decide an
action based on current state (spot price). In order …
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