Valuation of Currency Option based on Uncertain Fractional Differential Equation

Weiwei Wang; Dan A. Ralescu; Xiaojuan Xue

doi:10.20944/preprints202404.1008.v1

Preprint Article Version 1 Preserved in Portico This version is not peer-reviewed

Version 1 : Received: 15 April 2024 / Approved: 15 April 2024 / Online: 16 April 2024 (11:07:10 CEST)

Uncertain fractional differential equation (UFDE) is an excellent tool for describing complicated dynamic systems. This paper analyzes the valuation problems of currency option based on UFDE under optimistic value criterion. Firstly, an uncertain fractional currency model is formulated to describe the dynamics of foreign exchange rate. Then, the pricing formulae of European, American and Asian currency option are obtained under optimistic value criterion, respectively. Finally, numerical simulations are provided to illustrate the validity of our theoretical results.

uncertainty; fractional-order differential equation; currency option; optimistic value

Computer Science and Mathematics, Applied Mathematics

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Valuation of Currency Option based on Uncertain Fractional Differential Equation

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