Local volatility calibration using an adjoint proxy
Turinici, Gabriel (2008), Local volatility calibration using an adjoint proxy, Review of Economic and Business Studies, 2, p. 1
TypeArticle accepté pour publication ou publié
External document linkhttp://hal.archives-ouvertes.fr/hal-00306187/en/
Journal nameReview of Economic and Business Studies
Editura Universităţii "Al.I. Cuza
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Abstract (EN)We document the calibration of the local volatility in a frame- work similar to Coleman, Li and Verma. The quality of a surface is assessed through a functional to be optimized; the specificity of the approach is to separate the optimization (performed with any suitable optimization algorithm) from the computation of the functional where we use an adjoint (as in L. Jiang et. al.) to obtain an approximation; moreover our main calibration variable is the implied volatility (the procedure can also accommodate the Greeks). The procedure per- forms well on benchmarks from the literature and on FOREX data.
Subjects / Keywordslocal volatility; calibration; adjoint; Dupire formula; implied volatility
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