Pricing Binary Options Based on Fuzzy Number Theory
نویسنده
چکیده
Options pricing model parameters are inherently imprecise due to fluctuations in the real-world financial market. Traditional option pricing methods do not account for the uncertainty in parameters, but the fuzzy set theory may be applicable. This paper proposes a cash-or-nothing European call binary option pricing model based on the hypothesis that the underlying asset price, risk-free rate of interest, and volatility all are uncertain. We present the fuzzy pricing model of the cash-or-nothing call binary option under the fuzzy environment. Two numerical examples presented in the paper illustrate the rationality and effectiveness of the fuzzy option pricing model.
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