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Monotonicity theorem for the uncertain fractional differential equation and application to uncertain financial market

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  • Jin, Ting
  • Yang, Xiangfeng

Abstract

Uncertain fractional differential equations (UFDEs) have non-locality features to reflect memory and hereditary characteristics for the asset price changes, thus are more suitable to model the real financial market. Based on this characteristic, this paper primarily investigates the monotonicity theorem for uncertain fractional differential equations in Caputo sense and its application. Firstly, monotonicity theorems for solutions of UFDEs are presented by using the α-path method. Secondly, as the application of the monotone function theorem, a novel uncertain fractional mean-reverting model with a floating interest rate is presented. Lastly, the pricing formulas of the European and American options are derived for the proposed model based on the monotone function and present extreme values and time integral theorems, respectively. In addition, numerical schemes are designed, and numerical calculations are illustrated concerning different parameters through the predictor–corrector method.

Suggested Citation

  • Jin, Ting & Yang, Xiangfeng, 2021. "Monotonicity theorem for the uncertain fractional differential equation and application to uncertain financial market," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 190(C), pages 203-221.
    • Handle: RePEc:eee:matcom:v:190:y:2021:i:c:p:203-221
    DOI: 10.1016/j.matcom.2021.05.018
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