Calibration of a Jump-Diffusion Process Using Optimal Control
2012 (English)In: Numerical Analysis Of Multiscale Computations / [ed] Engquist, B; Runborg, O; Tsai, YHR, Springer Berlin/Heidelberg, 2012, 259-277 p.Conference paper (Refereed)
A method for calibrating a jump-diffusion model to observed option prices is presented. The calibration problem is formulated as an optimal control problem, with the model parameters as the control variable. It is well known that such problems are ill-posed and need to be regularized. A Hamiltonian system, with non-differentiable Hamiltonian, is obtained from the characteristics of the corresponding Hamilton-Jacobi-Bellman equation. An explicit regularization of the Hamiltonian is suggested, and the regularized Hamiltonian system is solved with a symplectic Euler method. The paper is concluded with some numerical experiments on real and artificial data.
Place, publisher, year, edition, pages
Springer Berlin/Heidelberg, 2012. 259-277 p.
, Lecture Notes in Computational Science and Engineering, ISSN 1439-7358 ; 82
Stochastic Volatility, Options
IdentifiersURN: urn:nbn:se:kth:diva-25087DOI: 10.1007/978-3-642-21943-6_12ISI: 000310180800012ISBN: 978-3-642-21942-9OAI: oai:DiVA.org:kth-25087DiVA: diva2:355726
Workshop on Numerical Analysis and Multiscale Computations Location: Banff Int Res Stn, Banff, Canada Date: DEC 06-11, 2009
QC 20101008. Updated from manuscript to conference paper.2010-10-082010-10-082012-11-23Bibliographically approved