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Fuzzy pricing of American options on stocks with known dividends and its algorithm

✍ Scribed by Wei-Guo Zhang; Qing-Sheng Shi; Wei-Lin Xiao

Publisher
John Wiley and Sons
Year
2010
Tongue
English
Weight
124 KB
Volume
26
Category
Article
ISSN
0884-8173

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✦ Synopsis

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.

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