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A Binary Option Pricing Based on Fuzziness

Author

Listed:
  • Masatoshi Miyake

    (School of Management, Tokyo University of Science, Kuki-shi Saitama 346-8512, Japan)

  • Hiroshi Inoue

    (School of Management, Tokyo University of Science, Kuki-shi Saitama 346-8512, Japan)

  • Jianming Shi

    (School of Management, Tokyo University of Science, Kuki-shi Saitama 346-8512, Japan)

  • Tetsuya Shimokawa

    (School of Management, Tokyo University of Science, Kuki-shi Saitama 346-8512, Japan)

Abstract

In pricing for European option Black–Scholes model has been widely used in various fields in which the model can be applied under appropriate conditions. In this paper, we discuss a binary option, which is popular in OTC (Over the Counter) market for hedging and speculation. In particular, asset-or-nothing option is basic for any other options but gives essential implications for constructing more complex option products. In addition to the primary role of the asset-or-nothing option, another availability of the option is considered by introducing fuzzy concept. Therefore, the uncertainty which an investor and intermediary usually have in their minds is incorporated in the pricing model. Thus, the model is described with fuzzy boundary conditions and applied to the conventional binary option, proposing more useful and actual pricing way of the option. This methodology with the analysis is examined, comparing with Monte Carlo simulations.

Suggested Citation

  • Masatoshi Miyake & Hiroshi Inoue & Jianming Shi & Tetsuya Shimokawa, 2014. "A Binary Option Pricing Based on Fuzziness," International Journal of Information Technology & Decision Making (IJITDM), World Scientific Publishing Co. Pte. Ltd., vol. 13(06), pages 1211-1227.
    • Handle: RePEc:wsi:ijitdm:v:13:y:2014:i:06:n:s0219622014500345
    DOI: 10.1142/S0219622014500345
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    Cited by:

    1. Andrea Kolkova, 2017. "Testing EMA Indicator for the Currency Pair EUR / USD," International Journal of Entrepreneurial Knowledge, Center for International Scientific Research of VSO and VSPP, vol. 5(1), pages 35-40, June.
    2. Gurdal Ertek & Aysha Al-Kaabi & Aktham Issa Maghyereh, 2022. "Analytical Modeling and Empirical Analysis of Binary Options Strategies," Future Internet, MDPI, vol. 14(7), pages 1-23, July.
    3. Kolkova Andrea & Lenertova Lucie, 2016. "Binary Options As A Modern Fenomenon Of Financial Business," International Journal of Entrepreneurial Knowledge, Center for International Scientific Research of VSO and VSPP, vol. 4(1), pages 52-59, June.

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