TY - JOUR U1 - Zeitschriftenartikel, wissenschaftlich - begutachtet (reviewed) A1 - Herzog, Bodo A1 - Osamah, Sufyan T1 - Reverse engineering of option pricing: an AI application JF - International journal of financial studies : open access journal N2 - This paper studies option pricing based on a reverse engineering (RE) approach. We utilize artificial intelligence in order to numerically compute the prices of options. The data consist of more than 5000 call- and put-options from the German stock market. First, we find that option pricing under reverse engineering obtains a smaller root mean square error to market prices. Second, we show that the reverse engineering model is reliant on training data. In general, the novel idea of reverse engineering is a rewarding direction for future research. It circumvents the limitations of finance theory, among others strong assumptions and numerical approximations under the Black–Scholes model. KW - reverse engineering KW - option pricing KW - derivatives KW - genetic algorithm KW - artificial intelligence KW - machine learning Y1 - 2019 UN - https://nbn-resolving.org/urn:nbn:de:bsz:rt2-opus4-24312 SN - 2227-7072 SS - 2227-7072 U6 - https://doi.org/10.3390/ijfs7040068 DO - https://doi.org/10.3390/ijfs7040068 VL - 7 IS - 4 SP - 1 EP - 12 S1 - 12 PB - MDPI CY - Basel ER -