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Fuzzy pricing of American options on stocks with known dividends and its algorithm
Author(s) -
Zhang WeiGuo,
Shi QingSheng,
Xiao WeiLin
Publication year - 2011
Publication title -
international journal of intelligent systems
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.291
H-Index - 87
eISSN - 1098-111X
pISSN - 0884-8173
DOI - 10.1002/int.20460
Subject(s) - monte carlo methods for option pricing , fuzzy logic , black–scholes model , valuation of options , trinomial tree , dividend , computer science , finite difference methods for option pricing , economics , econometrics , stock (firearms) , volatility (finance) , financial economics , mathematical optimization , mathematics , finance , artificial intelligence , mechanical engineering , engineering
Abstract The path‐dependent property of American options leads to the complexity of its pricing. Based on the analysis of American options' characteristics and the influence of the stock dividend, the American call option fuzzy pricing method is discussed in this paper. Under the assumption that the price of stock, discount rate, the volatility, and interest rate are all fuzzy numbers, the fuzzy pricing formula of American option is proposed by using the Black–Scholes pricing model. Then the interpolation search algorithm is designed to solve the proposed pricing model. Finally, the validity and accuracy of this model and its algorithm have to be tested with some numerical examples. © 2010 Wiley Periodicals, Inc.