The derivation of the risk-neutral probabilities in a binary tree, in the presence of uncertainty on the underlying asset moves, boils down to the solution of dual fuzzy linear systems. The issue has previously been addressed and different solutions to the dual systems have been found. The aim of this paper is to apply a methodology which leads to a unique solution for the dual systems.
Fuzzy binary tree model for European options / Muzzioli, Silvia; H., Reynaerts. - STAMPA. - 8:(2006), pp. 437-441. [10.1007/3-540-28073-1_69]
Fuzzy binary tree model for European options
MUZZIOLI, Silvia;
2006
Abstract
The derivation of the risk-neutral probabilities in a binary tree, in the presence of uncertainty on the underlying asset moves, boils down to the solution of dual fuzzy linear systems. The issue has previously been addressed and different solutions to the dual systems have been found. The aim of this paper is to apply a methodology which leads to a unique solution for the dual systems.
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