A Fuzzy LP Approach to Option Portfolio

Xing YU, Hongguo SUN, Guohua CHEN


Abstract: Owing to the fluctuation of financial market from time to time,the volatility and stock price may occur imprecisely in the real world. Therefore, it is natural to consider the fuzzy volatility and fuzzy stock price in the financial market. Under these assumptions,the theoretical price deduced by Black–Scholes formula are will turn into the fuzzy numbers, and the derivatives, called the Greek parameters delta, gamma, of the BS model are also fuzzy numbers. An option portfolio considering these fuzzy numbers will be more accord with actual situations. In this paper, we propose a fuzzy programming model of option portfolio based a ranking criterion of fuzzy numbers, which the fuzzy option portfolio model is converted into a classical linear programming problem. Finally, a numerical example is given to illustrate the validity of the method.
Key words: Ranking Criterion; Option portfolio; Fuzzy Linear Programming; Delta-Gamma Neutral


Ranking Criterion; Option portfolio; Fuzzy Linear Programming; Delta-Gamma Neutral

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DOI: http://dx.doi.org/10.3968%2Fj.sms.1923845220120202.005


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