Approximating Option Greeks in a Classical and Multi-Curve Framework Using Artificial Neural Networks

Abstract

In this paper, the use of artificial neural networks (ANNs) is proposed to approximate the option price sensitivities of Johannesburg Stock Exchange (JSE) Top 40 European call options in a classical and a modern multi-curve framework. The ANNs were trained on artificially generated option price data given the illiquid nature of the South African market, and the out-of-sample performance of the optimized ANNs was evaluated using an implied volatility surface constructed from published volatility skews. The results from this paper show that ANNs trained on artificially generated input data are able to accurately approximate the explicit solutions to the respective option price sensitivities of both a classical and a modern multi-curve framework in a real-world out-of-sample application to the South African market.