Artificial Intelligence and Economic Theory: Skynet in the Market by Tshilidzi Marwala & Evan Hurwitz

Author:Tshilidzi Marwala & Evan Hurwitz
Language: eng
Format: epub
Publisher: Springer International Publishing, Cham

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The stock price is described by a geometric Brownian motion with constant drift and volatility.

The underlying security does declare dividend.

The Black-Scholes model offers a mechanism of approximating the underlying asset’s volatility which can be predicted using the Black-Scholes equation. The Black-Scholes model depends on the following parameters: volatility of the returns of the underlying assets, risk free annual rate, the strike price, the spot price of the underlying asset, the time to maturity and the cumulative distribution function which is normally a Gaussian distribution. With the advent of AI, it is now possible to model a property of the Black-Scholes model i.e. volatility which is fuzzy using fuzzy logic. Fuzzy logic is an AI procedure that is used to model linguistic variables mathematically (Sugeno 1985).

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