The Calibration of Stock Option Pricing Models Using Inverse Problem Methodology

Carl Chiarella (), Mark Craddock and Nadima El-Hassan ()
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Mark Craddock: Department of Mathematics, University of Technology, Sydney

No 39, Research Paper Series from Quantitative Finance Research Centre, University of Technology, Sydney

Abstract: We analyse the procedure for determining volatility presented by Lagnado and Osher, and explain in some detail where the scheme comes from. We present an alternative scheme which avoids some of the technical complications arising in Lagnado and Osher's approach. An algorithm for solving the resulting equations is given, along with a selection of numerical examples.

Date: 2000-03-01
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