Stable local volatility function calibration using spline kernel

Abstract

We propose an optimization formulation using the l1 norm to ensure accuracy and stability in calibrating a local volatility function for option pricing. Using a regularization parameter, the proposed objective function balances calibration accuracy with model complexity. Motivated by the support vector machine learning, the unknown local volatility function… (More)
DOI: 10.1007/s10589-013-9543-x

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