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Pricing Stock Options Using Black-Scholes And Fuzzy Sets

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  • JAMES J. BUCKLEY

    ()
    (Department of Mathematics, University of Alabama at Birmingham, Birmingham, Alabama, 35294, USA)

  • ESFANDIAR ESLAMI

    ()
    (Center of Excellence for Fuzzy Systems and Applications, Shahid Bahonar University of Kerman, Kerman, Iran; Institute for Studies in Theoretical Physics and Mathematics (IPM), Iran)

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    Abstract

    We use the basic Black-Scholes equation for pricing European stock options but we allow some of the parameters in the model to be uncertain and we model this uncertainty using fuzzy numbers. We compute the fuzzy number for the call value of option with and without uncertain dividends. This fuzzy set displays the uncertainty in the option's value due to the uncertainty in the input values to the model. We also correct an error in a recent paper which also fuzzified the Black-Scholes equation.

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    Bibliographic Info

    Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal New Mathematics and Natural Computation.

    Volume (Year): 04 (2008)
    Issue (Month): 02 ()
    Pages: 165-176

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    Handle: RePEc:wsi:nmncxx:v:04:y:2008:i:02:p:165-176

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    Related research

    Keywords: Pricing European options; Black-Scholes; fuzzy numbers;

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