Calibration of the local volatility in a trinomial tree using Tikhonov regularization
The author considers the inverse problem consisting of finding the diffusion coefficient in a parabolic equation from the knowledge of a solution. The problem is solved in the context of an application to mathematical finance where the coefficient is called ``the volatility, and the observed solution is the price of an option. The approach consists of comparing the actual observed solution to a numerical solution in which the unknown volatility is used to minimize an appropriate distance between the observations and the numerical solution. The different mathematical aspects of this procedure are part of a technical line of research carried out by the author and described in the references cited. It may be of interest to the readers to examine other approaches to the problem described in forthcoming papers by \textit{A. Balbas}, \textit{R. Romera} and \textit{E. Ruiz} ``An overview of probabilistic and time series models in finance [Glaz, J. (ed.) et al. ``Recent Advances in Applied Probability, Kluwer-Acad. PUb. (to appear)] by \textit{R. Lee} [``Implied volatility: Statistics, dynamics and probabilistic interpretation. Glaz, J. (eds.) et al. ``Recent Advances in Applied Probability, Kluwer (to appear) and in the simple minded approach of \textit{H. Gzyl} and \textit{M. Villasana} [``A perturbative approach for reconstructing diffusion coefficients, Appl. Math. Comp. (to appear) in which is seen how different polynomial models produce a very good fit to the observed solution, a fact that reflects the ill-posed nature of the problem.
- An alternative tree method for calibration of the local volatility
- Calibration of the Local Volatility in a Generalized Black--Scholes Model Using Tikhonov Regularization
- Calibration of stochastic volatility models: a Tikhonov regularization approach
- scientific article; zbMATH DE number 6999659
- Calibration of the volatility in option pricing using the total variation regularization
- Non-parametric calibration of the local volatility surface for European options using a second-order Tikhonov regularization
- Asymptotics and calibration of local volatility models
- The calibration of stochastic local-volatility models: an inverse problem perspective
- Calibrating local volatility models with stochastic drift and diffusion
- Convex regularization of local volatility estimation
- Sequential quadratic programming method for volatility estimation in option pricing
- The adjoint method for the inverse problem of option pricing
- Efficient calibration of trinomial trees for one-factor short rate models
- A perturbative approach for reconstructing diffusion coefficients
- An alternative tree method for calibration of the local volatility
- Stable reconstruction of the volatility in a regime-switching local-volatility model
- The calibration of stochastic local-volatility models: an inverse problem perspective
- Non-recombining trinomial tree pricing model and calibration for the volatility smile
- Identifying the coefficient of first-order in parabolic equation from final measurement data
- Calibrating local volatility in inverse option pricing using the Levenberg-Marquardt method
- An introduction to particle methods with financial applications
- An improved Markov chain approximation methodology: derivatives pricing and model calibration
- Convex regularization of local volatility estimation
- Arbitrage-free smoothing of the implied volatility surface
- Convex regularization of local volatility models from option prices: convergence analysis and rates
- Multiasset derivatives and joint distributions of asset prices
- Delta-hedging vega risk?
- ADAPTIVE FINITE ELEMENT METHODS FOR LOCAL VOLATILITY EUROPEAN OPTION PRICING
- COMPUTATION OF LOCAL VOLATILITIES FROM REGULARIZED DUPIRE EQUATIONS
- Entropy binomial tree method and calibration for the volatility smile
- The tangential cone condition for the iterative calibration of local volatility surfaces
- Reconstructing local volatility using total variation
- Inversion of option prices for implied risk-neutral probability density functions: general theory and its applications to the natural gas market
- Estimation of risk-neutral density surfaces
- Traveling wave solutions of an equation of Harry Dym type arising in the Black-Scholes framework
- A splitting strategy for the calibration of jump-diffusion models
- The inverse volatility problem for American options
- An inverse problem arisen in the zero-coupon bond pricing
This page was built for publication: Calibration of the local volatility in a trinomial tree using Tikhonov regularization
Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q4807847)
