Summary
The bacterial foraging optimisation algorithm is a novel natural computing algorithm which is based on mimicking the foraging behavior of E.coli bacteria. This chapter illustrates how a bacteria foraging optimisation algorithm (BFOA) can be constructed. The utility of this algorithm is tested by comparing its performance on a series of benchmark functions against that of the canonical genetic algorithm (GA). Following this, the algorithm’s performance is further assessed by applying it to estimate parameters for an EGARCH model which can then be applied for pricing volatility options. The results suggest that the BFOA can be used as a complementary technique to conventional statistical computing techniques in parameter estimation for financial models.