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Pricing currency options based on fuzzy techniques

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  • Liu, Fan-Yong

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.

Suggested Citation

  • Liu, Fan-Yong, 2009. "Pricing currency options based on fuzzy techniques," European Journal of Operational Research, Elsevier, vol. 193(2), pages 530-540, March.
    • Handle: RePEc:eee:ejores:v:193:y:2009:i:2:p:530-540
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    Cited by:

    1. Shvedov, Alexey, 2016. "Estimating the means and the covariances of fuzzy random variables," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 42, pages 121-138.

    More about this item

    Keywords

    Finance Pricing Fuzzy sets Currency options;

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