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

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