A Study Of Fuzzy Binomial Model In Options Pricing And Its Application

As a kind of widely applied financial derivatives, options are play more and more important role in the financial market. Binomial options pricing model which have simple structure is widely used in the financial market and become one of the basic options pricing methods.In real world the future state of a system might not be known completely due to lack of information. Therefore, decision making which based on individuals' subjective perceptions or personality tendencies for judgment, evaluation and decisions are different in many areas. In this paper, credibility theory is applied to traditional binomial model, stock price is assumed as fuzzy variable, then the fuzzy binomial tree model can be built to price European options and American options. With the approach of eliminating the fuzziness in the result, the method of getting expected value is adopted to help investor make descion. In one period model, numberical result of expected value can be got and the membership function of option value is approximately given. Fuzzy simulation is available for multiperiod case.Finally, fuzzy binomial tree model is apply to price real options, an example is also given to prove the validity of result.