IDEAS home Printed from https://ideas.repec.org/a/spr/fuzodm/v20y2021i4d10.1007_s10700-021-09354-z.html
   My bibliography  Save this article

Option pricing formulas based on uncertain fractional differential equation

Author

Listed:
  • Weiwei Wang

    (Shanghai Jiao Tong University)

  • Dan A. Ralescu

    (University of Cincinnati)

Abstract

Uncertain fractional differential equations have been playing an important role in modelling complex dynamic systems. Early researchers have presented the extreme value theorems and time integral theorem on uncertain fractional differential equation. As applications of these theorems, this paper investigates the pricing problems of American option and Asian option under uncertain financial markets based on uncertain fractional differential equations. Then the analytical solutions and numerical solutions of these option prices are derived, respectively. Finally, some numerical experiments are performed to verify the effectiveness of our results.

Suggested Citation

  • Weiwei Wang & Dan A. Ralescu, 2021. "Option pricing formulas based on uncertain fractional differential equation," Fuzzy Optimization and Decision Making, Springer, vol. 20(4), pages 471-495, December.
    • Handle: RePEc:spr:fuzodm:v:20:y:2021:i:4:d:10.1007_s10700-021-09354-z
    DOI: 10.1007/s10700-021-09354-z
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10700-021-09354-z
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s10700-021-09354-z?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Lu, Ziqiang & Zhu, Yuanguo, 2019. "Numerical approach for solution to an uncertain fractional differential equation," Applied Mathematics and Computation, Elsevier, vol. 343(C), pages 137-148.
    2. Zhang, Yi & Gao, Jinwu & Huang, Zhiyong, 2017. "Hamming method for solving uncertain differential equations," Applied Mathematics and Computation, Elsevier, vol. 313(C), pages 331-341.
    3. Lu, Ziqiang & Zhu, Yuanguo & Li, Bo, 2019. "Critical value-based Asian option pricing model for uncertain financial markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 525(C), pages 694-703.
    4. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    5. Jin, Ting & Sun, Yun & Zhu, Yuanguo, 2019. "Extreme values for solution to uncertain fractional differential equation and application to American option pricing model," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 534(C).
    6. Gao, Rong, 2016. "Milne method for solving uncertain differential equations," Applied Mathematics and Computation, Elsevier, vol. 274(C), pages 774-785.
    7. Jin, Ting & Zhu, Yuanguo, 2020. "First hitting time about solution for an uncertain fractional differential equation and application to an uncertain risk index model," Chaos, Solitons & Fractals, Elsevier, vol. 137(C).
    8. Ziqiang Lu & Hongyan Yan & Yuanguo Zhu, 2019. "European option pricing model based on uncertain fractional differential equation," Fuzzy Optimization and Decision Making, Springer, vol. 18(2), pages 199-217, June.
    9. Jin, Ting & Sun, Yun & Zhu, Yuanguo, 2020. "Time integral about solution of an uncertain fractional order differential equation and application to zero-coupon bond model," Applied Mathematics and Computation, Elsevier, vol. 372(C).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Lu, Ziqiang & Zhu, Yuanguo, 2022. "Nonlinear impulsive problems for uncertain fractional differential equations," Chaos, Solitons & Fractals, Elsevier, vol. 157(C).
    2. Jian Zhou & Yujiao Jiang & Athanasios A. Pantelous & Weiwen Dai, 2023. "A systematic review of uncertainty theory with the use of scientometrical method," Fuzzy Optimization and Decision Making, Springer, vol. 22(3), pages 463-518, September.
    3. Shu, Yadong & Li, Bo, 2022. "Existence and uniqueness of solutions to uncertain fractional switched systems with an uncertain stock model," Chaos, Solitons & Fractals, Elsevier, vol. 155(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jin, Ting & Yang, Xiangfeng, 2021. "Monotonicity theorem for the uncertain fractional differential equation and application to uncertain financial market," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 190(C), pages 203-221.
    2. Jin, Ting & Ding, Hui & Xia, Hongxuan & Bao, Jinfeng, 2021. "Reliability index and Asian barrier option pricing formulas of the uncertain fractional first-hitting time model with Caputo type," Chaos, Solitons & Fractals, Elsevier, vol. 142(C).
    3. Liu He & Yuanguo Zhu & Ziqiang Lu, 2023. "Parameter estimation for uncertain fractional differential equations," Fuzzy Optimization and Decision Making, Springer, vol. 22(1), pages 103-122, March.
    4. Jian Zhou & Yujiao Jiang & Athanasios A. Pantelous & Weiwen Dai, 2023. "A systematic review of uncertainty theory with the use of scientometrical method," Fuzzy Optimization and Decision Making, Springer, vol. 22(3), pages 463-518, September.
    5. Wang, Jian & Zhu, Yuanguo & Gu, Yajing & Lu, Ziqiang, 2021. "Solutions of linear uncertain fractional order neutral differential equations," Applied Mathematics and Computation, Elsevier, vol. 407(C).
    6. Jin, Ting & Zhu, Yuanguo, 2020. "First hitting time about solution for an uncertain fractional differential equation and application to an uncertain risk index model," Chaos, Solitons & Fractals, Elsevier, vol. 137(C).
    7. Lu, Qinyun & Zhu, Yuanguo, 2021. "LQ optimal control of fractional-order discrete-time uncertain systems," Chaos, Solitons & Fractals, Elsevier, vol. 147(C).
    8. Liu, Yiyu & Zhu, Yuanguo & Lu, Ziqiang, 2021. "On Caputo-Hadamard uncertain fractional differential equations," Chaos, Solitons & Fractals, Elsevier, vol. 146(C).
    9. Jia, Lifen & Chen, Wei, 2020. "Knock-in options of an uncertain stock model with floating interest rate," Chaos, Solitons & Fractals, Elsevier, vol. 141(C).
    10. Jin, Ting & Sun, Yun & Zhu, Yuanguo, 2020. "Time integral about solution of an uncertain fractional order differential equation and application to zero-coupon bond model," Applied Mathematics and Computation, Elsevier, vol. 372(C).
    11. Yan, Hongyan & Jin, Ting & Sun, Yun, 2020. "Uncertain bang–bang control problem for multi-stage switched systems," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 551(C).
    12. Caiwen Gao & Zhiqiang Zhang & Baoliang Liu, 2022. "Uncertain Population Model with Jumps," Mathematics, MDPI, vol. 10(13), pages 1-12, June.
    13. Yang, Xiangfeng & Ralescu, Dan A., 2021. "A Dufort–Frankel scheme for one-dimensional uncertain heat equation," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 181(C), pages 98-112.
    14. Lifen Jia & Wei Chen, 2021. "Uncertain SEIAR model for COVID-19 cases in China," Fuzzy Optimization and Decision Making, Springer, vol. 20(2), pages 243-259, June.
    15. Yang, Xiangfeng & Liu, Yuhan & Park, Gyei-Kark, 2020. "Parameter estimation of uncertain differential equation with application to financial market," Chaos, Solitons & Fractals, Elsevier, vol. 139(C).
    16. Jia, Lifen & Lio, Waichon & Yang, Xiangfeng, 2018. "Numerical method for solving uncertain spring vibration equation," Applied Mathematics and Computation, Elsevier, vol. 337(C), pages 428-441.
    17. Lu, Ziqiang & Zhu, Yuanguo, 2019. "Numerical approach for solution to an uncertain fractional differential equation," Applied Mathematics and Computation, Elsevier, vol. 343(C), pages 137-148.
    18. Shu, Yadong & Li, Bo, 2022. "Existence and uniqueness of solutions to uncertain fractional switched systems with an uncertain stock model," Chaos, Solitons & Fractals, Elsevier, vol. 155(C).
    19. Kai Yao & Baoding Liu, 2020. "Parameter estimation in uncertain differential equations," Fuzzy Optimization and Decision Making, Springer, vol. 19(1), pages 1-12, March.
    20. Qinyun Lu & Yuanguo Zhu, 2020. "Finite-time stability of uncertain fractional difference equations," Fuzzy Optimization and Decision Making, Springer, vol. 19(2), pages 239-249, June.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:fuzodm:v:20:y:2021:i:4:d:10.1007_s10700-021-09354-z. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.