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VALUING MERGER AND AQUISITION TARGETS WITH A

CREDIBILISTIC PAY-OFF MODEL

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1. Preliminaries
The uncertainty is a phenomenon that we can find frequently in economic and financial
activities.According to [35], Section 2.1, “uncertainty can be understood a lack of
information about an issue of interest for a certain agent (e.g., a human decision making or
a machine), a condition of limited knowledge in which it is impossible to exactly describe
the state of the world or its future evolution”.
Undoubtedly, probability theory is the most well-known and used mathematical
representation of uncertainty. At the same time, it was found that probability theory
cannot adequately reflect all situations in which uncertainty arises. Therefore, other
theories of uncertainty have been developed (see [35]). Following [35], p.1, a theory of
uncertainty has two basic components: “(i) a mathematical object encoding an uncertain
state of the world, and (ii) an operator which allows with uncertain states”. This operator
will be called an uncertainty operator. For example, the probability measure is the
uncertainty operator in the probability theory.
An important theory of uncertainty is L.A. Zadeh's theory of possibility [24]. In
possibility theory, events are represented by the crisp subsets of a non-empty universe of
objects (which may be individuals, states, alternatives, etc.). Instead of probability measure
here we have two operators of uncertainty: the probability measure and the necessity
measure.
Let us consider a universe X. As stated above, the family of events will be the family
of crisp subsets of X.
Throughout this paper, we shall assume that the elements of X are real numbers, i.e. . A
fuzzy variable as an arbitrary .
The notions of possibility measure and necessity measure were axiomatically defined by
Zadeh in [24]. Following [24] or [16], [22], recall that a possibility measure on X is a
function , such that for any family of events, the following equalities hold:

(Pos 1) ; (1)
(Pos 2)

Dually, a necessity measure on X is a function , such that for any family of events, the
following equalities hold:

(Nec 1) ;
(Nec 2) (2)
With any possibility measure Pos, one can associate a necessity measure , defined by ,
for any event A for which is the complement or opposite event. Dually, with any necessity
measure associated Nec one can associate a possibility measure Pos, defined by . For any
event A, Pos(A) is the possibility of A and Nec(A) is the necessity of A.
Another theory of uncertainty developed in recent decades is the credibility theory,
invented by B. Liu and Y.K. Liu in [31]. The uncertainty operator of the credibility theory
is the credibility measure, the notion defined axiomatically in [13] (one of its axioms says
that it is a self-dual measure). An equivalent way to define the credibility of an event A is to
take
(3)
whenever Nec is the necessity measure associated with the possibility measure Pos.
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In [12], Yang and Iwamura generalized the possibility measure, the necessity measure
and the credibility measure. For any real parameter , let us define the function , by the
following formula
, for all . (4)

The measure is a convex combination of the possibility measure Pos and the associated
necessity measure Nec by means of the weight . We remark the following:
- if = 1 then become the possibility measure Pos;
- if = 1/2 then becomes the credibility measure Cred;
-if = 0 then becomes the necessity measure Nec.
By [21], [16], a possibility distribution on X is a function , that fulfills the following
condition ; the possibility distribution is said to be normalized if for some .
Let us fix a normalized possibility distribution . Then, one can associate with a
possibility measure Pos and a necessity measure Nec:
, for any event ; (5)

, for any event . (6)

Thus, for each parameter , the new measure defined by (4) is given by the following
formula:
, for all . (7)

If in (7) we take , then we obtain the well - known formula for the credibility of
the event A:
, for all . (8)
Following [16], [13], we say that the normalized distribution is the membership
function associated with the fuzzy variable if for any event A we have
. (9)

By taking into account formula (9) it is easy to see that the following equalities hold:
; (10)
. (11)

2. Indicators of trapezoidal fuzzy numbers with measure

The fuzzy numbers are particular cases of fuzzy variables. They have remarkable algebraic
properties that generalize the algebraic structure of real numbers (cf. [20],[21]). Among the
fuzzy numbers we distinguish triangular and trapezoidal fuzzy numbers, with very good
computational properties.
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Therefore to deal with numerous concrete problems in fuzzy economics the framework
offered by triangular and trapezoidal fuzzy numbers is sufficient.
Recall from [3], p. 73, that a trapezoidal fuzzy number , with
real numbers such that is defined by the following formula:

(12)

A triangular fuzzy number , with real numbers is defined by:

(13)

Lemma 3.1 [1] For any trapezoidal fuzzy number we have

(14)

The basic concepts of classical probability theory are the probability measure and the
random variable [33] and the basic concepts of the credibility theory are the credibility
measure and the fuzzy variable [13 ]. By using these basic concepts are defined the
indicators that describe the uncertainty phenomena: the probabilistic indicators
(probabilistic expected value, variance, moments,etc.) of a random variable (cf. [33])) and
the credibilistic indicators (credibilistic expected value, variance, moments, etc.) of a fuzzy
variable.
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In general, in each uncertainty theory there are certain indicators defined on the basis of
the uncertainty operator of the theory. These indicators are the main tools used in
investigating uncertainty phenomena that can be formalized within (inside) the theory of
uncertainty.
In this section we shall study two indicators of a trapezoidal fuzzy number A associated
with measure: the expected value and the expected value of the
positive part of A.
By using the measure one can build a new uncertainty theory that extends the
credibility theory (named -theory). The basic indicators of -theory are introduced
in [ 14]. Of these, to us the expected value is important, which we remember in
the following definition:

Definition 3.2 [14] The expected value of a fuzzy variable w.r.t. the measure is
defined by the formula

This indicator of - theory is analogous to the mean value of a random variable.

Customizing lambda in the formula of we find various forms of this indicator.
For example for = 1/2 one obtains the formula of credibilistic expected value din [13 ], [31
].
Remark 3.3 [1] By using Lemma 3.1 one can find the following form the expected value
of a trapezoidal fuzzy number :

(15)
The previous formula of the expected value suggests to us to introduce the
main notion of this paper:

Definition 3.4 The expected value of the positive part of a fuzzy variable w.r.t. the
measure is defined by the formula:

(16)
In the following theorem we will compute the indicator for a trapezoidal
fuzzy number A.

Theorem 3.5 The expected value of the positive part of a trapezoidal fuzzy number
w.r.t the measure is given by the formula:
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(17)
Proof.
Fig. 1. Five possible cases with a trapezoidal fuzzy number

In order to compute the indicator we shall apply the formula (16) in each of the
five cases indicated in Fig. 1.
Case 1.
In this case, (16) becomes:

(cf. (15))
Case 2.

By using Figure 1 and formulas (14) and (16), we obtain

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A straightforward computation of the three integral gives the expression:

Case 3.

In this case we have the following computation

Case 4
By applying (14) and (16) we get

Case 5.

Then formula (17) was verified.

Corollary 3.5. The expected value of the positive part of a triangular fuzzy number
w.r.t. the measure is given by the following formula:

(18)
Proof. If in (17) we take c=b then we obtain (18).

Remark 3.6. We observe that (18) is exactly the formula (3.7) in [32].
Remark 3.7. If the trapezoidal fuzzy number A is written as with
and then by applying Proposition 3.4, the expected value of the
positive part of A becomes
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(19)

Remark 3.8. Let us take in formula (19). Then we get the formula of the
credibilistic expected value of the positive part of the trapezoidal fuzzy number
, proved by Collan et al. in [8 ]:
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2. Indicators of interval - valued fuzzy numbers w.r.t. a measure

A fuzzy set A defined on a universe X associates with each object x of X a value A(x) in
the interval [0,1], called the degree of membership of x to A. In the real world there are
phenomena of uncertainty, in which the degree of membership can only be approximated.
For this reason, generalizations of the notion of fuzzy set have been proposed, which will
be able to shape such situations of uncertainty. One of these generalizations is the notion of
of interval-valued fuzzy set, introduced by Zadeh in [23]. This notion ensures each object x
of X a lower bound and an upper bound for the membership degree of x. Formally, an
interval-valued fuzzy set on X is a function , where is the set
of all closed intervals of real numbers in [0,1] (see [36], p.16). Then for each , one

associates a closed interval included in [0, 1]. This way, one

obtains two fuzzy sets and defined by the assignments
and . We notice that .A
particular case occurs when and are fuzzy numbers. Then A will be called interval-
valued fuzzy number.

By using the -measure we shall define two indicators of an interval-valued fuzzy

number A: the expected value of A and the expected value of the
positive part of A.
Let us fix a parameter , a measure (defined by …) and an interval-valued

fuzzy number A. Since are fuzzy numbers, one can consider the expected values

of , resp. . With these perspectives, we are ready to

introduce the two indicators.
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Definition 4.1. The expected value of an interval - valued fuzzy set A w.r.t. the measure

is defined by .
Definition 4.2. The expected value of the positive part of an interval- valued set A w.r.t. the

measure is defined by .

The main objective of this section is to compute the expected value of an

interval-valued fuzzy number A, defined by the trapezoidal fuzzy numbers

.
For this we will consider the seven possible cases as visualized in Figure below
A new figure for IV trapezoidal fuzzy numbers

According to Remark 3.8, we obtain the following formulas for the expected values of the
positive parts of the trapezoidal fuzzy numbers

.
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In order to compute , we will apply these two formulas in the following

cases:

Case 1
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Noticing that

,
and applying Definition 4.2, one will obtain:

=
Case 2 In this case we will have
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thus by applying Definition 4.2 it follows:

Doing similarly, in the other cases we will obtain the formulas:

Case 3
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Case 4

, ;

Case 5
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Case 6

, ;

Case 7
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