Pricing of European call option under fuzzy interest rate

Abstract

Option pricing under fuzzy environment is a hot research topic nowadays. Traditionally, option pricing were made in the case of fixed interest rate, while the fluctuate of interest rate may result in profit loss or bring unexpected risk. Thus, based on credibility theory, a new option pricing model under fuzzy interest rate are constructed in this paper. In fact, almost all fuzzy option pricing uses expected value method. In this paper, a new pricing method, fuzzy term structure and fuzzy affine term structure method, is adopted, and two European call option pricing formulas are obtained, one is that the fuzzy interest rate coefficients are constants, the other is that the fuzzy interest rate drift coefficient is a fuzzy process.