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Corpus ID: 189928391

Calibration of Local-Stochastic Volatility Models by Optimal Transport

@article{Guo2019CalibrationOL,
title={Calibration of Local-Stochastic Volatility Models by Optimal Transport},
author={Ivan Guo and G. Loeper and S. Wang},
journal={arXiv: Mathematical Finance},
year={2019}
}

In this paper, we study a semi-martingale optimal transport problem and its application to the calibration of Local-Stochastic Volatility (LSV) models. Rather than considering the classical constraints on marginal distributions at initial and final time, we optimise our cost function given the prices of a finite number of European options. We formulate the problem as a convex optimisation problem, for which we provide a dual formulation. Then we solve numerically the dual problem, which… Expand