European Option Pricing Under Fuzzy CEV Model

Xinyue Wei (), Cuilian You () and Yujie Zhang ()
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Xinyue Wei: Hebei University
Cuilian You: Hebei University
Yujie Zhang: Hebei University

Journal of Optimization Theory and Applications, 2023, vol. 196, issue 2, No 2, 415-432

Abstract: Abstract In modern financial market, option is a very effective tool to hedge the risks brought by various uncertainties in real society. Therefore, it is of great significance to select an appropriate stock model to price options. To this aim, the paper presents a general stock model with fuzzy volatility for fuzzy financial market, that is, fuzzy constant elasticity of variance model. The advantage is that the fuzzy volatility of underlying stock is related to its price and can explain volatility smile. In addition, we consider the impact of elasticity coefficient on stock price and then limit the elasticity coefficient to a reasonable range. Subsequently, the European call and European put option pricing formulas are given, separately. Finally, some figures and tables are given to illustrate the impact of parameter changes on option prices.

Keywords: Credibility measure; Fuzzy differential equation; Liu process; Option pricing; Constant elasticity of variance (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s10957-022-02108-w

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