ADDITION OF THE FUZZY LOGIC MODEL TO BLACK-SCHOLES, FOR PRICING MEXICAN CURRENCY OPTIONS, LA INCORPORACION DE LA LOGICA DIFUSA AL MODELO BLACK-SCHOLES, PARA LA DETERMINACION DEL PRECIO DE LA OPCION CAMBIARIA MEXICANA

Manuel Munoz Palma and Ezequiel Aviles Ochoa

Revista Internacional Administracion & Finanzas, 2014, vol. 7, issue 7, 55-73

Abstract: Since the introduction of uncertainty theory, a new paradigm in economics and finance has formed. This shift has included incorporation of new models that allow a greater degree of accuracy in modeling the reality of the environment of organizations based on fuzzy logic theory. This article emphasizes the importance of uncertainty present in the financial markets, which has provoked an increasing need for establishing models to determine its effect in pricing. Specifically we focus on futures and derivatives markets. A proposal is developed to determine the price of an exchange option applying triangular fuzzy numbers to exchange rate variables, to domestic interest rates, and foreign interest rates based on the classic Black-Scholes (B-S) model.

Keywords: Financial Risk; Fuzzy Numbers; Black-Scholes Model (search for similar items in EconPapers)
JEL-codes: G13 G15 (search for similar items in EconPapers)
Date: 2014
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