Volume 29 Number 3, 2024

Fuzzy Asset Pricing Under the Law of One Price

Tsong–Yue Lai ^a, Mark Hoven Stohs ^{b, *
a, b} Emeritus Professor of Finance, California State University Fullerton, Fullerton, California
^a tylai@fullerton.edu
^*b mstohs@fullerton.edu
 

ABSTRACT

With the law of one price, a fuzzy asset pricing provides an alternative for asset/property evaluation. We create two pseudo assets to mimic the asset being evaluated. Pseudo assets are constructed by two sets of comparable assets within the same industry/sector and then to solve a unique solution of systematic simultaneous equations for each set, such that each pseudo asset factors’ components are identical to the asset being evaluated. Then we calculate both pseudo asset pricings according to their solution based on the simultaneous equations detailed below. With the pseudo prices, we set a fuzzy asset pricing range for the asset under the law of one price. This fuzzy pricing model serves two purposes: (2) estimating asset pricing within this fuzzy range; and (2) using the fuzzy range as a yardstick for evaluating the realized performance of any asset class, such as equity, property, or mutual funds.

JEL Classification: C6,C8,G0, G1,G5,R0,R3

Keywords: asset pricing, CAPM, beta, arbitrary pricing theory (APT), fuzzy, comparable asset, the law of one price, evaluation, simultaneous equation, multi–factor asset pricing model

Cite this article: 

Lai, T.-Y., Stohs, M.H., 2024, Fuzzy Asset Pricing Under the Law of One Price, International Journal of Business, 29(3), 001. https://doi.org/10.55802/IJB.029(3).001