Control-theoretic framework for a quasi-Newton local volatility surface inversion

Gabriel Turinici ()
Additional contact information
Gabriel Turinici: CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique

Post-Print from HAL

Abstract: We investigate in this paper the recovery of the local volatility surface in a parametric framework similar to that of Coleman, Li and Verma [4]. The quality of a surface is assessed through a functional which is optimized; the specificity of the approach is to separate the optimization on the parametric space (performed with any suitable optimization algorithm) from the computation of the functional where we use an adjoint formulation similar to that of the optimal control; the procedure can thus incorporate information from any derivative contract compatible with the adjoint approach. The procedure was implemented and was shown to perform satisfactory on real-world data.

Keywords: local volatility; calibration; volatility calibration; inversion; finance; financial derivatives; options (search for similar items in EconPapers)
Date: 2008-09-25
Note: View the original document on HAL open archive server: https://hal.science/hal-00298960v1
References: Add references at CitEc
Citations:

Published in ICCMSE, Sep 2008, Crete, Greece. pp.254-257

Downloads: (external link)
https://hal.science/hal-00298960v1/document (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00298960

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().