Avellaneda, Marco; Friedman, Craig; Holmes, Richard; … - In: Applied Mathematical Finance 4 (1997) 1, pp. 37-64
A framework for calibrating a pricing model to a prescribed set of options prices quoted in the market is presented. Our algorithm yields an arbitrage-free diffusion process that minimizes the Kullback-Leibler relative entropy distance to a prior diffusion. It consists in solving a constrained...