scholarly journals Using Artificial Neural Networks to Support the Decision-Making Process of Buying Call Options Considering Risk Appetite

Energies ◽  
2021 ◽  
Vol 14 (24) ◽  
pp. 8494
Author(s):  
Radosław Puka ◽  
Bartosz Łamasz ◽  
Marek Michalski
Keyword(s):  
Neural Networks ◽  
Artificial Neural Networks ◽  
Crude Oil ◽  
Price Change ◽  
Oil Price ◽  
Test Set ◽  
Call Options ◽  
Risk Appetite ◽  
Artificial Neural ◽  
Level Of Risk

During the COVID-19 pandemic, uncertainty has increased in many areas of both business supply and demand, notably oil demand and pricing have become even more unpredictable than before. Thus, for companies that buy large quantities of oil, effective oil price risk management is crucial for business success. Nevertheless, businesses’ risk appetite, specifically willingness to accept more risk to achieve desired business benefits, varies significantly. The aim of this paper is to deepen the analysis of the effectiveness of employing artificial neural networks (ANNs) in hedging against oil price changes by searching for buy signals for European WTI (West Texas Intermediate) crude oil call options, while taking into account the level of risk appetite. The number of generated buy signals decreases with increasing risk appetite, and thus the amount of capital necessary to buy options decreases. However, the results show that fewer buy signals do not necessarily translate into lower returns generated by networks in a given class. Thus, higher levels of return on the purchase of call options may be obtained. The conducted analyses clearly proved that ANNs can be a useful tool in the process of managing WTI crude oil price change risk. Using the analyzed network parameters, up to 29.9% of the theoretical maximum possible profit from buying options every day was obtained in the test set. Furthermore, all proposed networks generated some profit for the test set. The values of all indicators used in the analyses confirm that the ANNs can be effective regardless of the level of risk appetite, so in this respect they may be described as a universal decision support tool.

scholarly journals Effectiveness of Artificial Neural Networks in Hedging Against WTI Crude Oil Price Risk

Energies ◽  
2021 ◽  
Vol 14 (11) ◽  
pp. 3308
Author(s):  
Radosław Puka ◽  
Bartosz Łamasz ◽  
Marek Michalski
Keyword(s):  
Neural Networks ◽  
Artificial Neural Networks ◽  
Crude Oil ◽  
Renewable Energy Sources ◽  
Classification Problem ◽  
Oil Price ◽  
Price Risk ◽  
Call Option ◽  
Artificial Neural ◽  
Oil Price Risk

Despite the growing share of renewable energy sources, most of the world energy supply is still based on hydrocarbons and the vast majority of world transport is fuelled by oil products. Thus, the profitability of many companies may depend on the effective management of oil price risk. In this article, we analysed the effectiveness of artificial neural networks in hedging against the risk of WTI crude oil prices increase. This was reformulated from a regressive problem to a classification problem. The effectiveness of our approach, using artificial neural networks to classify observations, was verified for over ten years of WTI futures quotes, starting from 2009. The data analysis presented in this paper confirmed that the buyer of a call option was more often likely to incur a loss as a result of its purchase than make a profit after the final payoff from the call option. The results of the conducted research confirm that neural networks can be an effective form of protection against the risk of price fluctuations. The effectiveness of a network’s operation depends on the choice of assessment indicators, but analyses show that the networks which, for the indicator that was selected, gave the best results for the training set, also resulted in positive rates of return for the test set. Significantly, we also showed interdependence between seemingly unrelated indicators: percentage of the best possible results achieved in the analysed period of time by the proposed method and percentage of all available call options that were purchased based on the results from the networks that were used.

scholarly journals Application of Artificial Neural Networks to Predict Beach Nourishment Volume Requirements

2021 ◽  
Vol 9 (8) ◽  
pp. 786
Author(s):  
Damjan Bujak ◽  
Tonko Bogovac ◽  
Dalibor Carević ◽  
Suzana Ilic ◽  
Goran Lončar
Keyword(s):  
Neural Networks ◽  
Artificial Neural Networks ◽  
Spatial Variability ◽  
Coastal Management ◽  
Wind Wave ◽  
Predictive Ability ◽  
Test Set ◽  
Adriatic Coast ◽  
Important Input ◽  
Artificial Neural

The volume of material required for the construction of new and expansion of existing beach sites is an important parameter for coastal management. This information may play a crucial role when deciding which beach sites to develop. This work examines whether artificial neural networks (ANNs) can predict the spatial variability of nourishment requirements on the Croatian coast. We use survey data of the nourishment volume requirements and gravel diameter from 2016 to 2020, fetch length, beach area and orientation derived from national maps which vary from location to location due to a complex coastal configuration on the East Adriatic coast, and wind, tide, and rainfall data from nearby meteorological/oceanographic stations to train and test ANNs. The results reported here confirm that an ANN can adequately predict the spatial variability of observed nourishment volumes (R and MSE for the test set equal 0.87 and 2.24 × 104, respectively). The contributions of different parameters to the ANN’s predictive ability were examined. Apart from the most obvious parameters like the beach length and the beach areas, the fetch length proved to be the most important input contribution to ANN’s predictive ability, followed by the beach orientation. Fetch length and beach orientation are parameters governing the wind wave height and direction and hence are proxies for forcing.

Neural network based stochastic design charts for settlement prediction

2005 ◽  
Vol 42 (1) ◽  
pp. 110-120 ◽  
Author(s):  
M A Shahin ◽  
M B Jaksa ◽  
H R Maier
Keyword(s):  
Neural Networks ◽  
Monte Carlo ◽  
Artificial Neural Networks ◽  
Shallow Foundations ◽  
Granular Soils ◽  
Traditional Methods ◽  
Settlement Prediction ◽  
Design Charts ◽  
Artificial Neural ◽  
Level Of Risk

Traditional methods of settlement prediction of shallow foundations on granular soils are far from accurate and consistent. This can be attributed to the fact that the problem of estimating the settlement of shallow foundations on granular soils is very complex and not yet entirely understood. Recently, artificial neural networks (ANNs) have been shown to outperform the most commonly used traditional methods for predicting the settlement of shallow foundations on granular soils. However, despite the relative advantage of the ANN based approach, it does not take into account the uncertainty that may affect the magnitude of the predicted settlement. Artificial neural networks, like more traditional methods of settlement prediction, are based on deterministic approaches that ignore this uncertainty and thus provide single values of settlement with no indication of the level of risk associated with these values. An alternative stochastic approach is essential to provide more rational estimation of settlement. In this paper, the likely distribution of predicted settlements, given the uncertainties associated with settlement prediction, is obtained by combining Monte Carlo simulation with a deterministic ANN model. A set of stochastic design charts, which incorporate the uncertainty associated with the ANN method, is developed. The charts are considered to be useful in the sense that they enable the designer to make informed decisions regarding the level of risk associated with predicted settlements and consequently provide a more realistic indication of what the actual settlement might be.Key words: settlement prediction, shallow foundations, neural networks, Monte Carlo, stochastic simulation.

scholarly journals Artificial neural networks predictive models. A case study: carbon and bromine concentrations prediction based on chlorination time

2013 ◽  
Vol 14 (1) ◽  
pp. 10-17
Keyword(s):  
Neural Networks ◽  
Artificial Neural Networks ◽  
Potable Water ◽  
Back Propagation ◽  
Ann Model ◽  
Data Set ◽  
Test Set ◽  
Feed Forward Back Propagation ◽  
Artificial Neural ◽  
Comparison Of The Results

Artificial neural networks (ANNs) are being used increasingly to predict water variables. This study offers an alternative approach to quantify the relationship between time of chlorination in potable water (due to convectional treatment procedure) and chlorination by-products concentration (expressed as carbon and bromine) with an ANN model, i.e., capturing non-linear relationships among the water quality variables. Thus, carbon and bromine concentrations in potable water (the second chosen due to the toxicity of brominated trihalomethanes, THMs) were predicted using artificial neural networks (ANNs) based mainly on multi-layer perceptrons (MLPs) architecture. The chlorination (detention) time as much as 58 hours in Athens distributed network, comprised the input variables to the ANNs models. Moreover, to develop an ANN model for estimating carbon and bromine, the available data set was partitioned into training, validation and test set. In order to reach an optimum amount of hidden layers or nodes, different architectures were tested. The quality of the ANN simulations was evaluated in terms of the error in the validation sample set for the proper interpretation of the results. The calculated sum-squared errors for training, validation and test set were 0.056, 0.039 and 0.060 respectively for the best model selected. Comparison of the results showed that a two-layer feed-forward back propagation ANN model could be used as an acceptable model for predicting carbon and bromine contained in potable water THMs.

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