Inverse Problems · 2001 · 119 citations · 7 references
BusinessFinanceMathematicsAsset PricingDifferential EquationsFinancial EconomicsImplied VolatilityOptimal ControlOption PricingOption Pricing ModelsPartial Differential EquationsVolatility ModelingImplied Volatility EstimationImplied Volatility ModelingInverse Parameter IdentificationInverse Problem TheoryInverse Problems For Ordinary Differential EquationsInverse Problems In Partial Differential EquationsOption Pricing TheoryParameter Identification
In this paper, we use an optimal control framework to determine implied volatility and make a rigorous mathematical analysis of this inverse problem. We also prove the approximate optimal solutions converge to the appropriate solutions for the original problem. Being different from ordinary parameter identification problems, our problem is to identify the coefficient of the second-order partial derivative in the equation with the PDE being non-divergent.
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Mark Rubinstein · The Journal of Finance · 1994 · 1.7K citations
Implied Trinomial Tress of the Volatility Smile
Emanuel Derman, Iraj Kani, Neil Chriss · The Journal of Derivatives · 1996 · 145 citations