MSc in Finance Graduate & Quant Analyst Candidate

Enhancing Option Pricing Using Machine Learning and Black-Scholes Model

July 8th, 2024

The thesis “Enhancing Option Pricing Using Machine Learning and Black-Scholes Model” aims to improve option pricing accuracy by integrating machine learning techniques with the traditional Black-Scholes model. The main objective is to address the Black-Scholes model’s limitation of assuming constant volatility by incorporating dynamically predicted volatility using machine learning models. Historical financial data, including stock prices, macroeconomic indicators, and technical indicators, were collected to train and validate Random Forest and Neural Network models for predicting market volatility.

The Black-Scholes model was modified to include these dynamically predicted volatilities, and its performance was compared to traditional methods and the GARCH model. The study concluded that the Neural Network model performed better than the Random Forest model, with a lower Root Mean Square Error (RMSE) of 8.63, indicating higher accuracy and better trend-following capabilities. Both models effectively captured market trends, but the Neural Network model was more consistent and responsive to rapid market changes.

The Active Share of Euro Spanish Equity Investment Funds

September 23rd, 2023

The main objective of the thesis is to calculate the Active Share in Excel for a sample of 154 equity investment funds in Spain for the period from December 2000 to June 2020.

Subsequently, this calculation will be carried out using Python programming. To do so, we will first contextualise the investment fund industry, covering its definition, history, types of investment funds and the management that can be applied to them. We will also focus on the calculation of Active Share and all aspects related to this measure. Next, we will analyse in detail the database from which we will derive the calculations, distinguishing between the composition of mutual fund portfolios and the composition of the benchmark index. Finally, we will perform the calculation of the measure for these investment funds and explain how to program it in Python.