TITLE

THE REGULARIZED IMPLIED LOCAL VOLATILITY EQUATIONS -A NEW MODEL TO RECOVER THE VOLATILITY OF UNDERLYING ASSET FROM OBSERVED MARKET OPTION PRICE

AUTHOR(S)
Lishang Jiang; Baojun Bian
PUB. DATE
September 2012
SOURCE
Discrete & Continuous Dynamical Systems - Series B;Sep2012, Vol. 17 Issue 6, p2017
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
In this paper, we propose a new continuous time model to recover the volatility of underlying asset from observed market European option price. The model is a couple of fully nonlinear parabolic partial difierential equations(see (34), (36)). As an inverse problem, the model is deduced from a Tikhonov regularization framework. Based on our method, the recovering procedure is stable and accurate. It is justified not only in theoretical proofs, but also in the numerical experiments.
ACCESSION #
82234185

 

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