Numerical Pricing of European Stock Options Using Black-Scholes Interval Model

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Authors: Muhammad Iqbal Aditama, Rudianto Artiono
Cited by: 0

Abstract

This study presents the numerical implementation of the Black-Scholes interval model for determining the price of European call options under parameter uncertainty. Unlike the classic Black-Scholes model, which assumes fixed volatility and risk-free interest rates, this study represents both parameters as limited intervals constructed based on historical data. Daily stock closing prices obtained from Yahoo Finance and risk-free interest rate data from the Federal Reserve Bank of St. Louis were used to define the parameter ranges. The interval Black-Scholes model was discretized in the asset price and time domains and solved numerically by formulating an optimization problem that minimizes the residual error of the interval partial differential equation with terminal payoff constraints. The numerical solution produces lower and upper bounds for option prices in the specified domain. Simulation results show that classic Black-Scholes option prices lie within the calculated interval price bounds, demonstrating numerical consistency between the deterministic and interval formulations.This study provides a structured numerical case study showing how the Black-Scholes interval model can be implemented to generate option price bounds under bounded parameter uncertainty

Fields of Study & Subjects

Stochastic processes and financial applications Fuzzy Systems and Optimization Numerical Methods and Algorithms

Publication details

Journal / source
CAUCHY Jurnal Matematika Murni dan Aplikasi
Volume
11
Issue
1
Pages
340–349
Publication date
17 February 2026
Language
EN