Using neural networks to forecast the S & P 100 implied volatility

The implied volatility, calculated using the Black-Scholes model, is currently the most popular method of estimating volatility and is considered by traders to be a significant factor in signalling price movements in the underlying market. Thus, the ability to develop accurate forecasts of future volatility allows a trader to establish the proper strategic position in anticipation of changes in market trends. A neural network has been developed to forecast future volatility, using past volatilities and other options market factors. The performance of this network demonstrates its value as a predictive tool.