A Soft Robust Model forDerivative Contracts Pricing Using Fuzzy Approach

Risk control and derivative pricing have become of major concern to financial institutions, and there is a real need for adequate statistical tools to measure and anticipate the amplitude of the potential moves of the financial markets. With various categories of fuzziness in the market, the factors that influence Derivative Contracts Pricing include not only the characteristic of randomness but also nonrandom fuzziness. Thus, it is necessary to bring fuzziness into the process of Derivative Contracts Pricing. Based on fuzzy process theory, this paper first brings fuzziness into Derivative Contracts Pricing, discusses some pricing formulas of Derivative Contracts, and puts forward a Fuzzy function which builds a foundation for Derivative Contracts pricing. Many differenttypes of derivatives havedifferent pricing mechanismswhich is referred to in this article.In this paper we present an application of a new method of constructing fuzzy estimators for the parameters of a given probability distribution function, using statistical data. This application belongs to the financial field and especially to the section of financial engineering.In financial markets there are great fluctuations, thus the element of vagueness and uncertainty is frequent. This application concerns Derivative Contracts Pricing formula. We make use of fuzzy estimators for the volatility of Derivative Contracts returns and we consider the Derivative Contracts price as a symmetric triangular fuzzy number.

Keywords:

Derivative Contracts , Pricing , Fuzzy Approach , Risk Control