Soft Computing

, Volume 21, Issue 22, pp 6739–6754 | Cite as

An uncertain currency model with floating interest rates

Methodologies and Application

Abstract

Considering the uncertain fluctuations in the financial market from time to time, we propose a currency model with floating interest rates within the framework of uncertainty theory. Different from the classical stochastic currency models, this paper is assumed that the domestic interest rate, the foreign interest rate and the exchange rate follow uncertain differential equations. After that, the pricing formulas of European and American currency options are derived. The simulation experiments presented in this paper illustrate the performance of the proposed model, and the relationship between the option pricing formulas and all relevant parameters is analyzed.

Keywords

Currency model Option pricing formula Floating interest rate Uncertain differential equation 

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Copyright information

© Springer-Verlag Berlin Heidelberg 2016

Authors and Affiliations

  1. 1.School of Information EngineeringShandong Youth University of Political ScienceJinanChina

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