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Mean-reverting stock model with floating interest rate in uncertain environment

Author

Listed:
  • Yiyao Sun

    (University of Chinese Academy of Sciences)

  • Taoyong Su

    (Tongji University)

Abstract

As an application of uncertainty theory in the field of finance, uncertain finance is playing a more and more important role in solving the financial problems. This paper proposes a mean-reverting stock model with floating interest rate to investigate the uncertain financial market. The European option and American option pricing formulas of the stock model are derived by using the Yao–Chen formula. Besides, some numerical algorithms are designed to compute the prices of these options based on the pricing formulas.

Suggested Citation

  • Yiyao Sun & Taoyong Su, 2017. "Mean-reverting stock model with floating interest rate in uncertain environment," Fuzzy Optimization and Decision Making, Springer, vol. 16(2), pages 235-255, June.
    • Handle: RePEc:spr:fuzodm:v:16:y:2017:i:2:d:10.1007_s10700-016-9247-7
    DOI: 10.1007/s10700-016-9247-7
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    References listed on IDEAS

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    1. Yang, Xiangfeng & Ralescu, Dan A., 2015. "Adams method for solving uncertain differential equations," Applied Mathematics and Computation, Elsevier, vol. 270(C), pages 993-1003.
    2. 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..
    3. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    4. Wang, Xiao & Ning, Yufu & Moughal, Tauqir A. & Chen, Xiumei, 2015. "Adams–Simpson method for solving uncertain differential equation," Applied Mathematics and Computation, Elsevier, vol. 271(C), pages 209-219.
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    Cited by:

    1. Lu, Jing & Yang, Xiangfeng & Tian, Miao, 2022. "Barrier swaption pricing formulae of mean-reverting model in uncertain environment," Chaos, Solitons & Fractals, Elsevier, vol. 160(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. Yu, Yongjiu & Yang, Xiangfeng & Lei, Qing, 2022. "Pricing of equity swaps in uncertain financial market," Chaos, Solitons & Fractals, Elsevier, vol. 154(C).
    4. Tian, Miao & Yang, Xiangfeng & Zhang, Yi, 2019. "Barrier option pricing of mean-reverting stock model in uncertain environment," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 166(C), pages 126-143.
    5. 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.
    6. 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.
    7. 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.

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