Stable local volatility function calibration using spline kernel

DOI10.1007/S10589-013-9543-XMaRDI QIDQ2393653zbMATH OpenOpenAlexFDO

Authors Yuying Li, Cheng Wang, Thomas F. Coleman

Publication date 8 August 2013

Published in Computational Optimization and Applications (Search for Journal in Brave)

Full work available at URL https://doi.org/10.1007/s10589-013-9543-x

zbMATH Keywords

option pricingcalibrationtrust region methodspline kernellocal volatility function\(L_1\) optimization

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Applications of mathematical programming (90C90)

Recommendations

• Calibration of the local volatility surface
• COMPUTATION OF LOCAL VOLATILITIES FROM REGULARIZED DUPIRE EQUATIONS
• Reconstructing the unknown local volatility function
• Recovery of the local volatility function using regularization and a gradient projection method
• Calibration of the Local Volatility in a Generalized Black--Scholes Model Using Tikhonov Regularization

Cites work

• scientific article; zbMATH DE number 992819 (Why is no real title available?)
• scientific article; zbMATH DE number 3687182 (Why is no real title available?)
• scientific article; zbMATH DE number 1332320 (Why is no real title available?)
• A Reflective Newton Method for Minimizing a Quadratic Function Subject to Bounds on Some of the Variables
• A closed-form solution for options with stochastic volatility with applications to bond and currency options
• An Interior Trust Region Approach for Nonlinear Minimization Subject to Bounds
• Calibration and hedging under jump diffusion
• On the convergence of interior-reflective Newton methods for nonlinear minimization subject to bounds
• Option pricing when underlying stock returns are discontinuous
• The pricing of options and corporate liabilities
• Using radial basis functions to construct local volatility surfaces

Cited in

(5)

• Reconstruction of the time-dependent volatility function using the Black-Scholes model
• Reconstructing the unknown local volatility function
• Using radial basis functions to construct local volatility surfaces
• Robust calibration and arbitrage-free interpolation of SSVI slices
• Bi-cubic B-spline fitting-based local volatility model with mean reversion process

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