Journal
FUZZY OPTIMIZATION AND DECISION MAKING
Volume 15, Issue 2, Pages 139-154Publisher
SPRINGER
DOI: 10.1007/s10700-015-9223-7
Keywords
Uncertainty theory; Uncertain differential equation; Interest rate; Finance
Funding
- Taft Travel Grant for Research
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The interest rate ceiling and floor are the popular interest rate derivatives in a financial market. In this paper, the valuation of interest rate ceiling and floor is investigated by using uncertainty theory. Different from the classical stochastic interest rate models, the uncertain interest rate model is used in this paper as the basis of evaluating the interest rate ceiling and floor. Based on the assumption that the short interest rate follows uncertain differential equations, the price formulas of interest rate ceiling and floor are derived.
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