Algorithm for determining the volatility function in the Black–Scholes model

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Authors
Isakov, Victor
Kabanikhin, Sergey Igorevich
Shananin, Alexander A.
Shishlenin, Maxim A.
Zhang, Shuhua
Issue Date
2019-10
Type
Article
Language
en_US
Keywords
Black–Scholes equation , Coefficient inverse problem , Local volatility , Optimization
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Abstract

Abstract: An algorithm for reconstructing the volatility function in the modified Black–Scholes model is developed. Results of numerical computations are presented. It is shown that adding information about the prices of similar options with different issue dates makes it possible to improve the accuracy and increase the interval in which the volatility function can be reconstructed.

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Citation
Isakov, V.M., Kabanikhin, S.I., Shananin, A.A. et al. Comput. Math. and Math. Phys. (2019) 59: 1753
Publisher
Pleiades Publishing
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DOI
ISSN
0965-5425
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