Pricing options in a fuzzy environment
type: CreativeWork
description: Although Fuzzy Logic is not new, it is however only since 2004 that an axiomatic theory has been created that has all the desirable effects of Fuzzy Logic. This theory, named Credibility theory was proposed by Dr. Liu. Within this thesis we aim to utilize credibility theory to model the psychological impacts of market participants on European options. Specifically this is done by modifying the approach that was originally taken by Black and Scholes. The Hew model, which is known as the fuzzy drift parameter model, begins by replacing the deterministic drift within Brownian motion with a fuzzy parameter. This fuzzy parameter models the psychological impacts of market participants. Naturally as we are dealing in Chance theory 1 the risk neutral dynamics change from that of Black and Scholes and thus so does the price of European call options.
abstract: Although Fuzzy Logic is not new, it is however only since 2004 that an axiomatic theory has been created that has all the desirable effects of Fuzzy Logic. This theory, named Credibility theory was proposed by Dr. Liu. Within this thesis we aim to utilize credibility theory to model the psychological impacts of market participants on European options. Specifically this is done by modifying the approach that was originally taken by Black and Scholes. The Hew model, which is known as the fuzzy drift parameter model, begins by replacing the deterministic drift within Brownian motion with a fuzzy parameter. This fuzzy parameter models the psychological impacts of market participants. Naturally as we are dealing in Chance theory 1 the risk neutral dynamics change from that of Black and Scholes and thus so does the price of European call options.
author: Ramsden, Bevan
language: eng
date published: 2008
date modified: 2026-07-22T22:23:46Z
provider: University of Cape Town
publisher: Networked Digital Library of Theses and Dissertations
type: WebPage
source organization: Department of Mathematics and Applied Mathematics

PropertyValue
property ID: Handle
value: http://hdl.handle.net/11427/4924