Maximum entropy regularization for calibrating a time-dependent volatility function

Description

We investigate the applicability of the method of maximum entropy regularization (MER) including convergence and convergence rates of regularized solutions to
the specific inverse problem (SIP) of calibrating a purely time-dependent volatility
function. In this context, we extend the results of [16] and [17] in some details.
Due to the explicit structure of the forward operator based on a generalized Black-Scholes formula the ill-posedness character of the nonlinear inverse problem (SIP)
can be verified. Numerical case studies illustrate the chances and limitations of
(MER) versus Tikhonov regularization (TR) for smooth solutions and solutions
with a sharp peak.

Links & Downloads

1. urn:nbn:de:swb:ch1-200401213
2. https://monarch.qucosa.de/id/qucosa%3A18200
3. https://monarch.qucosa.de/api/qucosa%3A18200/attachment/ATT-0/
4. https://monarch.qucosa.de/api/qucosa%3A18200/attachment/ATT-1/

Tags

info:eu-repo/classification/ddc/510

ddc:510

Tikhonov regularization

convergence rate

inverse problem

maximum entropy regularization

volatility calibration

Additional Fields

Identifer	oai:union.ndltd.org:DRESDEN/oai:qucosa:de:qucosa:18200
Date	26 August 2004
Creators	Hofmann, Bernd, Krämer, Romy
Publisher	Technische Universität Chemnitz
Source Sets	Hochschulschriftenserver (HSSS) der SLUB Dresden
Language	English
Detected Language	English
Type	doc-type:lecture, info:eu-repo/semantics/lecture, doc-type:Text
Rights	info:eu-repo/semantics/openAccess