The main motivation in using fuzzy numbers in finance stays in the need of modeling uncertainty and vagueness that are implicit in many situations. However the fuzzy approach has not to be considered as a substitute of the probabilistic one but, moreover, a complementary way to describe the model peculiarities. Here we consider, in particular, the Black and Scholes model for option pricing and we show that the fuzzification of some key parameters enables a sensitivity analysis of the option price with respect to the risk-free interest rate, the final value of the underlying stock price, the volatility, and also better forecasts (see Thavaneswaran et al (2009) for details. The Greeks, in addition, play an important role in the definition of the shape of the fuzzy option price.
Option price sensitivities through fuzzy numbers / M.L. Guerra; L.Sorini; L.Stefanini. - In: COMPUTERS & MATHEMATICS WITH APPLICATIONS. - ISSN 0898-1221. - STAMPA. - 61:(2011), pp. 515-526. [10.1016/j.camwa.2010.11.024]
Option price sensitivities through fuzzy numbers
GUERRA, MARIA LETIZIA;
2011
Abstract
The main motivation in using fuzzy numbers in finance stays in the need of modeling uncertainty and vagueness that are implicit in many situations. However the fuzzy approach has not to be considered as a substitute of the probabilistic one but, moreover, a complementary way to describe the model peculiarities. Here we consider, in particular, the Black and Scholes model for option pricing and we show that the fuzzification of some key parameters enables a sensitivity analysis of the option price with respect to the risk-free interest rate, the final value of the underlying stock price, the volatility, and also better forecasts (see Thavaneswaran et al (2009) for details. The Greeks, in addition, play an important role in the definition of the shape of the fuzzy option price.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
