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Soft Computing

, Volume 22, Issue 12, pp 4153–4163 | Cite as

Valuation of European option under uncertain volatility model

  • Sabahat Hassanzadeh
  • Farshid Mehrdoust
Methodologies and Application
  • 141 Downloads

Abstract

Valuation of an option plays an important role in modern finance. As the financial market for derivatives continues to grow, the progress and the power of option pricing models at predicting the value of option premium are under investigations. In this paper, we assume that the volatility of the stock price follows an uncertain differential equation and propose an uncertain counterpart of the Heston model. This study also focuses on deriving a numerical method for pricing a European option under uncertain volatility model, and some numerical experiments are presented. Numerical experiments confirm that the developed methods are very efficient.

Keywords

Uncertainty theory Uncertain finance Uncertain volatility model European option pricing 

Notes

Acknowledgements

The authors would like to thank the editor and two anonymous referees for helpful comments on an earlier version of this paper. The authors would like to thank Iran National Science Foundation (INSF) for supporting this research under project number 95843696.

Compliance with ethical standards

Conflict of interest

The authors declare that they have no conflict of interest.

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Copyright information

© Springer-Verlag Berlin Heidelberg 2017

Authors and Affiliations

  1. 1.Department of Applied Mathematics, Faculty of Mathematical ScienceUniversity of GuilanRashtIran

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