Paper Info
Title
Valuation Of Interest Rate Ceiling And Floor Based On The Uncertain Fractional Differential Equation In Caputo Sense
Abstract
As an economic lever in financial market, interest rate option is not only the function of facilitating the bank to adjust the market fund supply and demand relation indirectly, but also provides the guarantee for investors to choose whether to exercise the right at the maturity date, thereby locking in the interest rate risk. This paper mainly studies the price of the interest rate ceiling as well as floor under the uncertain environment. Firstly, from the perspective of expert reliability, rather than relying on a large amount of historical financial data, to consider interest rate trends, and further assume that the dynamic change of the interest rate conforms to the uncertain process. Secondly, since uncertain fractional-order differential equations (UFDEs) have non-locality features to reflect memory and hereditary characteristics for the asset price changes, thus is more suitable to model the real financial market. We construct the mean-reverting interest rate model based on the UFDE in Caputo type. Then, the pricing formula of the interest rate ceiling and floor are provided separately. Finally, corresponding numerical examples and algorithms are given by using the predictor-corrector method, which support the validity of the proposed model.
Year
DOI
Venue
2021
10.3233/JIFS-201930
JOURNAL OF INTELLIGENT & FUZZY SYSTEMS
Keywords
DocType
Volume
Fractional differential equation, uncertain theory, interest rate, mean-reverting, predictor-corrector method
Journal
40
Issue
ISSN
Citations 
3
1064-1246
0
PageRank 
References 
Authors
0.34
0
5
Name
Order
Citations
PageRank
Ting Jin122.73
Hui Ding200.34
Bo Li388.65
Hongxuan Xia400.34
Chenxi Xue500.34