A new well-posed algorithm to recover implied local volatility

This paper presents a new algorithm to calibrate the option pricing model, i.e. the algorithm that recovers the implied local volatility function from market option prices in the optimal control framework. A unique optimal control is shown to exist. Our algorithm is well-posed. Our numerical experiments show that, with the help of the techniques developed in the field of optimal control, the local volatility function is recovered very well.

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Year of publication:	2003
Authors:	Jiang, Lishang ; Chen, Qihong ; Wang, Lijun ; Zhang, Jin
Published in:	Quantitative Finance. - Taylor & Francis Journals, ISSN 1469-7688. - Vol. 3.2003, 6, p. 451-457
Publisher:	Taylor & Francis Journals

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Extent:	text/html
Type of publication:	Article
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10009215012