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

DOI10.1080/14697688.2013.819988MaRDI QIDQ2879013zbMATH OpenOpenAlexFDO

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

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)

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Cites work

• scientific article; zbMATH DE number 2140079 (Why is no real title available?)
• scientific article; zbMATH DE number 3322278 (Why is no real title available?)
• ARPACK Users' Guide
• Adjoint equation-based methods for control problems in incompressible, viscous flows
• Calibrating volatility surfaces via relative-entropy minimization
• Calibration of local volatility using the local and implied instantaneous variance
• Calibration of the Local Volatility in a Generalized Black--Scholes Model Using Tikhonov Regularization
• Computational Methods for Option Pricing
• Evaluating Derivatives
• Identifying the volatility of underlying assets from option prices
• Option pricing with quadratic volatility: a revisit
• Recipes for adjoint code construction
• The analysis of an ill-posed problem using multi-scale resolution and second-order adjoint techniques
• The inverse problem of option pricing
• The pricing of options and corporate liabilities
• Tikhonov regularization applied to the inverse problem of option pricing: convergence analysis and rates
• Uniqueness, stability and numerical methods for the inverse problem that arises in financial markets

Cited in

(8)

• Calibration of the local volatility in a trinomial tree using Tikhonov regularization
• 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

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