The regularized implied local volatility equations -- a new model to recover the volatility of underlying asset from observed market option price

DOI10.3934/DCDSB.2012.17.2017MaRDI QIDQ449296zbMATH OpenOpenAlexFDO

Authors Lishang Jiang, Baojun Bian

Publication date 12 September 2012

Published in Discrete and Continuous Dynamical Systems. Series B (Search for Journal in Brave)

Full work available at URL https://doi.org/10.3934/dcdsb.2012.17.2017

zbMATH Keywords

inverse problemvariational inequalityparabolic equationimplied local volatility

Mathematics Subject Classification ID

PDEs in connection with game theory, economics, social and behavioral sciences (35Q91) Inverse problems for PDEs (35R30) Existence theories for optimal control problems involving partial differential equations (49J20) Variational inequalities (49J40) Optimality conditions for problems involving partial differential equations (49K20) Sensitivity, stability, well-posedness (49K40) Unilateral problems for linear parabolic equations and variational inequalities with linear parabolic operators (35K85)

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• Recover implied volatility of underlying asset from European option price
• Total variation regularization analysis for inverse volatility option pricing problem
• An inverse problem of reconstructing option drift rate from market observation data
• A new well-posed algorithm to recover implied local volatility
• Entropy binomial tree method and calibration for the volatility smile
• Calibration of stochastic volatility models: a Tikhonov regularization approach
• Recover implied volatility in short-term interest rate model

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