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On an implicit assessment of fuzzy volatility in the Black and Scholes environment

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  • Andrea Capotorti
  • Gianna Figa'-Talamanca

Abstract

In this work we suggest a methodology to obtain the membership of a non observable parameter through implicit information. To this aim we profit from the interpretation of membership functions as coherent conditional probabilities. We develop full details for the well known Black and Scholes pricing model where the membership of the volatility parameter is obtained from a sample of either asset prices or market prices for options written on that asset.

Suggested Citation

  • Andrea Capotorti & Gianna Figa'-Talamanca, 2012. "On an implicit assessment of fuzzy volatility in the Black and Scholes environment," Quaderni del Dipartimento di Economia, Finanza e Statistica 106/2012, Università di Perugia, Dipartimento Economia.
    • Handle: RePEc:pia:wpaper:106/2012
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    File URL: http://www2.ec.unipg.it/quaderni/qd_106_web.pdf
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    References listed on IDEAS

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    1. Bhattacharya, Mihir, 1980. "Empirical Properties of the Black-Scholes Formula Under Ideal Conditions," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 15(5), pages 1081-1105, December.
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