Convex regularization of local volatility models from option prices: convergence analysis and rates (Q412709)

A convex regularization of the local volatility surface identification problem for the Black-Scholes partial differential equation is studied. This problem is subject to different noise levels associated to bid-ask spreads and sampling errors. Stability and convergence of regularized solutions are shown. It is also shown that, if the source condition for the regularization functional is satisfied, then convex risk measures can be constructed.