An important issue in finance is model calibration. The calibration problem is the inverse of the option pricing problem. Calibration is performed on a set of option prices generated from a given exponential L´evy model. By numerical examples, it is shown that the usual formulation of the inverse problem via Non-linear Least Squares is an ill-posed problem. To achieve well-posedness of the problem, some regularization is needed. Therefore a regularization method based on relative entropy is applied.
| Identifer | oai:union.ndltd.org:UPSALLA1/oai:DiVA.org:lnu-9063 |
| Date | January 2010 |
| Creators | Nassar, Hiba |
| Publisher | Linnéuniversitetet, Institutionen för datavetenskap, fysik och matematik, DFM |
| Source Sets | DiVA Archive at Upsalla University |
| Language | English |
| Detected Language | English |
| Type | Student thesis, info:eu-repo/semantics/masterThesis, text |
| Format | application/pdf |
| Rights | info:eu-repo/semantics/openAccess |
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