Emvudu, Y.; Hein, T.; Hofmann, B. : Some approach for solving an inverse option pricing problem

Author(s) :

Emvudu, Y.; Hein, T.; Hofmann, B.

Title :

Some approach for solving an inverse option pricing problem

Electronic source :

[gzipped ps-file] 83 kB

Preprint series

Technische Universität Chemnitz, Fakultät für Mathematik (Germany). Preprint 2001-7, 2001

Mathematics Subject Classification :

35R30 [ Inverse problems for PDE ]

65J20 [ Improperly posed problems (numerical methods in abstract spaces) ]

60H15 [ Stochastic partial differential equations ]

Abstract :

We are dealt with a generalized version of the Black-Scholes model for option pricing with non-constant volatilities. In the focus of our considerations stands the solution of the inverse option pricing problem for European calls, where a time-dependent local volatility function is to be determined. We study this nonlinear ill-posed inverse problem from analytical and numerical viewpoints.

Keywords :

Stochastic differential equation, Black-Scholes partial differential equation, inverse problem of option pricing, identification of volatility functions, ill-posed problem, regularization

Language :

english

Publication time :

9/2001