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Addition Of The Fuzzy Logic Model To Black-Scholes, For Pricing Mexican Currency Options, La Incorporacion De La Logica Difusa Al Modelo Black-Scholes, Para La Determinacion Del Precio De La Opcion Cambiaria Mexicana

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  • Manuel Munoz Palma
  • Ezequiel Aviles Ochoa

Abstract

Since the introduction of uncertainty theory, a new paradigm in economics and finance has formed. This shift has included incorporation of new models that allow a greater degree of accuracy in modeling the reality of the environment of organizations based on fuzzy logic theory. This article emphasizes the importance of uncertainty present in the financial markets, which has provoked an increasing need for establishing models to determine its effect in pricing. Specifically we focus on futures and derivatives markets. A proposal is developed to determine the price of an exchange option applying triangular fuzzy numbers to exchange rate variables, to domestic interest rates, and foreign interest rates based on the classic Black-Scholes (B-S) model.

Suggested Citation

  • Manuel Munoz Palma & Ezequiel Aviles Ochoa, 2014. "Addition Of The Fuzzy Logic Model To Black-Scholes, For Pricing Mexican Currency Options, La Incorporacion De La Logica Difusa Al Modelo Black-Scholes, Para La Determinacion Del Precio De La Opcion Ca," Revista Internacional Administracion & Finanzas, The Institute for Business and Finance Research, vol. 7(7), pages 55-73.
    • Handle: RePEc:ibf:riafin:v:7:y:2014:i:7:p:55-73
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    References listed on IDEAS

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    More about this item

    Keywords

    Financial Risk; Fuzzy Numbers; Black-Scholes Model;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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