Hein, Torsten ; Hofmann, Bernd : On the inverse problem of option pricing in the time-dependent case

Author(s):

Hein, Torsten
Hofmann, Bernd

Title:

On the inverse problem of option pricing in the time-dependent case

Electronic source:

application/pdf

Preprint series:

Technische Universität Chemnitz, Fakultät für Mathematik (Germany). Preprint 1, 2003

Mathematics Subject Classification:

35R30			[ Inverse problems for PDE ]
91B24			[ Price theory and market structure ]
47H30			[ Particular nonlinear operators ]
65J20			[ Improperly posed problems; regularization ]

Abstract:

The paper analyses specific forward and inverse problems of option pricing for the purely time-dependent case. It gives some insight concerning the role of smoothness and no arbitrage of option data for the identification of volatility term-structure. Well-posed and ill-posed situations are distinguished and illustrated by numerical case studies.

Keywords:

inverse problems, option pricing, Nemytskii operator, Black-Scholes model, well-posedness, ill-posedness, numerical differentiation

Language:

English

Publication time:

5 / 2003