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Pricing currency options based on fuzzy techniques

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  • Liu, Fan-Yong
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    Abstract

    Owing to the fluctuation of financial markets from time to time, some financial variables can always be observed with perturbations and be expected in the imprecise sense. Therefore, this paper starts from the fuzzy environments of currency options markets, introduces fuzzy techniques, and gives a fuzzy currency options pricing model. By turning exchange rate, interest rates and volatility into triangular fuzzy numbers, the currency option price will turn into a fuzzy number. This makes the financial investors who can pick any currency option price with an acceptable belief degree for their later use. In order to obtain the belief degree, an optimization procedure has been applied. An empirical study is performed based on daily foreign exchange market data. The empirical study results indicate that the fuzzy currency options pricing method is a useful tool for modeling the imprecise problem in the real world.

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    Bibliographic Info

    Article provided by Elsevier in its journal European Journal of Operational Research.

    Volume (Year): 193 (2009)
    Issue (Month): 2 (March)
    Pages: 530-540

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    Handle: RePEc:eee:ejores:v:193:y:2009:i:2:p:530-540

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    Web page: http://www.elsevier.com/locate/eor

    Related research

    Keywords: Finance Pricing Fuzzy sets Currency options;

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