Non-parametric calibration of the local volatility surface for European options using a second-order Tikhonov regularization

DOI10.1080/14697688.2013.819988zbMATH Open1294.91187OpenAlexW1996207923MaRDI QIDQ2879013FDOQ2879013

Authors: Jian Geng, X. Chen, I. M. Navon 

Publication date: 5 September 2014

Published in: Quantitative Finance (Search for Journal in Brave)

Full work available at URL: https://doi.org/10.1080/14697688.2013.819988

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zbMATH Keywords

SVDlocal volatility surfacelarge scale nonlinear inverse problemsecond-order Tikhonov regularization

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Numerical methods (including Monte Carlo methods) (91G60) Ill-posedness and regularization problems in numerical linear algebra (65F22) Numerical methods for ill-posed problems for initial value and initial-boundary value problems involving PDEs (65M30)

Cites Work

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• Evaluating Derivatives
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• Uniqueness, stability and numerical methods for the inverse problem that arises in financial markets
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• The inverse problem of option pricing
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• Calibrating volatility surfaces via relative-entropy minimization
• Calibration of local volatility using the local and implied instantaneous variance
• The analysis of an ill-posed problem using multi-scale resolution and second-order adjoint techniques

Cited In (8)

• Data driven recovery of local volatility surfaces
• Reconstruction of the time-dependent volatility function using the Black-Scholes model
• Numerical techniques for determining implied volatility in option pricing
• The calibration of volatility for option pricing models with jump diffusion processes
• Online local volatility calibration by convex regularization
• Bayesian uncertainty quantification of local volatility model
• Calibration of the local volatility surface
• Calibration of the local volatility in a trinomial tree using Tikhonov regularization

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