Pricing Currency Options in a Fuzzy Environment

Owing to the vague fluctuation of financial markets from time to time, the pricing parameters of currency option may occur imprecisely. In this case, it is natural to consider the fuzzy environment of exchange rate markets. In this paper, we introduce fuzzy techniques and obtain the fuzzy version of the Garman-Kohlhagen model. Assuming that the spot exchange rate, domestic interest rate, foreign interest rate, and the volatility are nonlinear fuzzy numbers, the fuzzy price of currency option is obtained. Then the financial analyst can choose any currency option with an acceptable belief degree for investorpsilas later decision making. At last, a numerical example based on the fuzzy version of the Garman-Kohlhagen model indicates that the fuzzy sets theory is a useful tool for modeling the imprecise problem in the real world.