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The Calibration of Stock Option Pricing Models Using Inverse Problem Methodology
13
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0
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2000
Year
Numerical AnalysisOption PricingMultivariate Stochastic VolatilityVolatility ModelingAsset PricingNumerical ExamplesEngineeringUncertainty QuantificationComputational FinanceDerivative PricingAlternative SchemeBusinessInverse ProblemsFinancial EngineeringFinanceTechnical ComplicationsFinancial ModelingFinancial Mathematics
We analyse the procedure for determining volatility presented by Lagnado and Osher, and explain in some detail where the scheme comes from. We present an alternative scheme which avoids some of the technical complications arising in Lagnado and Osher's approach. An algorithm for solving the resulting equations is given, along with a selection of numerical examples.