• DocumentCode
    507039
  • Title

    The Fuzzy Binomial Option Pricing Model under Knightian Uncertainty

  • Author

    Li, Wei ; Han, Liyan

  • Author_Institution
    Sch. of Econ. & Manage., Beihang Univ., Beijing, China
  • Volume
    4
  • fYear
    2009
  • fDate
    14-16 Aug. 2009
  • Firstpage
    399
  • Lastpage
    403
  • Abstract
    Taking the Knightian uncertainty of financial market into consideration, the randomness and fuzziness of stock price should been evaluated by both probabilistic expectation and fuzzy expectation. We make use of parabolic type fuzzy numbers to discuss the fuzzy binomial option pricing model with uncertainty of both randomness and fuzziness, and derive expression for the fuzzy risk neutral probabilities, along with fuzzy expression for the fuzzy call prices. As a consequence, we obtain weighted intervals for the risk neutral probabilities and for the expected fuzzy call price. The empirical research of an actual warrant from the China financial market shows that the fuzzy models presented in this paper should do better than traditional binomial tree model in forecasting market price. This will allow a financial analyst to choose the European price at his acceptable degree of belief and make their investment strategy.
  • Keywords
    fuzzy set theory; pricing; probability; stock markets; trees (mathematics); Knightian uncertainty; binomial tree model; financial market; fuzzy binomial option pricing model; fuzzy call prices; fuzzy expectation; fuzzy expression; fuzzy models; fuzzy risk neutral probabilities; parabolic type fuzzy numbers; probabilistic expectation; stock price; weighted intervals; Conference management; Economic forecasting; Financial management; Fuzzy systems; Investments; Knowledge management; Predictive models; Pricing; Roads; Uncertainty;
  • fLanguage
    English
  • Publisher
    ieee
  • Conference_Titel
    Fuzzy Systems and Knowledge Discovery, 2009. FSKD '09. Sixth International Conference on
  • Conference_Location
    Tianjin
  • Print_ISBN
    978-0-7695-3735-1
  • Type

    conf

  • DOI
    10.1109/FSKD.2009.252
  • Filename
    5359195