A Sensitivity Analysis for the Pricing of European Call Options in a Binary Tree Model

The European call option prices have well-known formulae in the Cox-Ross-Rubinstein model, depending on the volatility of the underlying. Nevertheless it is hard to give a precise estimate of this volatility. S. Muzzioliand C. Toricelli handle this problem by using possibility distributions. In the first part of our paper we correct a number of mistakes found in theirwork. In the second part we present an alternative solution to the problem by performing a sensitivity analysis for the pricing of the option. This method isvery general in the sense that it can be applied if one describes the uncertaintyin the volatility by confidence intervals as well as if one describes it by fuzzy numbers.