PRICING STOCK OPTIONS USING FUZZY SETS

Document Type: Research Paper

Authors

1 Department of Mathematics, University of Alabama at Birmingham, Birmingham, Al 35209, USA

2 Department of Mathematics, Shahid Bahonar University of Kerman, Kerman and Institute for Studies in Theoretical Physics and Mathematics(IPM), Tehran, Iran

Abstract

We use the basic binomial option pricing method but allow some
or all the parameters in the model to be uncertain and model this uncertainty
using fuzzy numbers. We show that with the fuzzy model we can, with a
reasonably small number of steps, consider almost all possible future stock
prices; whereas the crisp model can consider only n + 1 prices after n steps.

Keywords


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