Open Access
2014 Compound Option Pricing under Fuzzy Environment
Xiandong Wang, Jianmin He, Shouwei Li
J. Appl. Math. 2014: 1-9 (2014). DOI: 10.1155/2014/875319

Abstract

Considering the uncertainty of a financial market includes two aspects: risk and vagueness; in this paper, fuzzy sets theory is applied to model the imprecise input parameters (interest rate and volatility). We present the fuzzy price of compound option by fuzzing the interest and volatility in Geske’s compound option pricing formula. For each α, the α-level set of fuzzy prices is obtained according to the fuzzy arithmetics and the definition of fuzzy-valued function. We apply a defuzzification method based on crisp possibilistic mean values of the fuzzy interest rate and fuzzy volatility to obtain the crisp possibilistic mean value of compound option price. Finally, we present a numerical analysis to illustrate the compound option pricing under fuzzy environment.

Citation

Download Citation

Xiandong Wang. Jianmin He. Shouwei Li. "Compound Option Pricing under Fuzzy Environment." J. Appl. Math. 2014 1 - 9, 2014. https://doi.org/10.1155/2014/875319

Information

Published: 2014
First available in Project Euclid: 2 March 2015

zbMATH: 07010784
MathSciNet: MR3178977
Digital Object Identifier: 10.1155/2014/875319

Rights: Copyright © 2014 Hindawi

Vol.2014 • 2014
Back to Top