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
Link To Document :
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