PRICING STOCK OPTIONS USING BLACK-SCHOLES AND FUZZY SETS

James J. Buckley () and Esfandiar Eslami ()
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James J. Buckley: Department of Mathematics, University of Alabama at Birmingham, Birmingham, Alabama, 35294, USA
Esfandiar Eslami: Center of Excellence for Fuzzy Systems and Applications, Shahid Bahonar University of Kerman, Kerman, Iran;

New Mathematics and Natural Computation (NMNC), 2008, vol. 04, issue 02, 165-176

Abstract: We use the basic Black-Scholes equation for pricing European stock options but we allow some of the parameters in the model to be uncertain and we model this uncertainty using fuzzy numbers. We compute the fuzzy number for the call value of option with and without uncertain dividends. This fuzzy set displays the uncertainty in the option's value due to the uncertainty in the input values to the model. We also correct an error in a recent paper which also fuzzified the Black-Scholes equation.

Keywords: Pricing European options; Black-Scholes; fuzzy numbers (search for similar items in EconPapers)
Date: 2008
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DOI: 10.1142/S1793005708001008

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