Exact volatility calibration based on a Dupire-type call-put duality for perpetual American options (Q841614)

The motivation of the paper is the calibration of the local volatility function of the nonlinear stock model with constant interest and dividend rates to the market prices of the American call and put options written on this stock. It is explained how a time-homogeneous volatility function can be recovered from the prices of the perpetual American call and put options written on an underlying evolving according to the corresponding time-homogeneous local volatility model. The methodology is more complicated than Dupire's formula, it is based on a call-put duality equality for perpetual American options related to the call-put duality equality equivalent to Dupire's formula in the European case. To show this duality equality, non-autonomous nonlinear ODEs satisfied by the perpetual call and put exercise boundaries as functions of the strike variable, are exhibited.