Pricing currency options based on fuzzy techniques

Fan-Yong Liu

European Journal of Operational Research, 2009, vol. 193, issue 2, 530-540

Abstract: Owing to the fluctuation of financial markets from time to time, some financial variables can always be observed with perturbations and be expected in the imprecise sense. Therefore, this paper starts from the fuzzy environments of currency options markets, introduces fuzzy techniques, and gives a fuzzy currency options pricing model. By turning exchange rate, interest rates and volatility into triangular fuzzy numbers, the currency option price will turn into a fuzzy number. This makes the financial investors who can pick any currency option price with an acceptable belief degree for their later use. In order to obtain the belief degree, an optimization procedure has been applied. An empirical study is performed based on daily foreign exchange market data. The empirical study results indicate that the fuzzy currency options pricing method is a useful tool for modeling the imprecise problem in the real world.

Keywords: Finance; Pricing; Fuzzy; sets; Currency; options (search for similar items in EconPapers)
Date: 2009
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0377-2217(07)01120-4
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:193:y:2009:i:2:p:530-540

Access Statistics for this article

European Journal of Operational Research is currently edited by Roman Slowinski, Jesus Artalejo, Jean-Charles. Billaut, Robert Dyson and Lorenzo Peccati

More articles in European Journal of Operational Research from Elsevier
Bibliographic data for series maintained by Catherine Liu ().