Non-dominant sorting Firefly algorithm for pricing American option

摘要

An option, a type of a financial derivative, is a contract that creates an opportunity for a market player to avoid risks involved in investing, especially in equities. An investor desires to know the accurate value of an option before entering into a contract to buy/sell the underlying asset (stock). There are various techniques that try to simulate real market conditions in order to price or evaluate an option. However, most of them achieved limited success due to high uncertainty in price behavior of the underlying asset. In this study, we propose a new variant of multi-objective Firefly algorithm to compute the accurate worth of an American option contract and compare the results with the popular option pricing models: Binomial Lattice and Monte-Carlo using the real market data.