Communications in Mathematical Finance

Option valuation pricing model with fuzzy volatility depending on time

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• Abstract 

  We propose a valuation of European call option with fuzzy volatility depending on time. The principle in this valuation where other parameters of option pricing model are supposed to be non fuzzy, consists in replacing volatility by its central value as defined by Bodjanova (see Bojanova 2005 [13]). After having given a sufficient condition guaranteeing the equality of the exact price of European call option with its price when fuzzy volatility is replaced by its central value, a case study is carried out to show the application of the approach suggested.

  Mathematics Subject Classification: 03B52, 28E10
  Keywords: Option pricing model, fuzzy number, volatility, fuzzy number central value.