Local Volatility Calibration Using An Adjoint Proxy
AbstractWe document the calibration of the local volatility in a framework 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 performs well on benchmarks from the literature and on FOREX data.
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Bibliographic InfoArticle provided by Alexandru Ioan Cuza University, Faculty of Economics and Business Administration in its journal Review of Economic and Business Studies.
Volume (Year): (2008)
Issue (Month): 2 (November)
calibration; local volatility; implied volatility; Dupire formula; adjoint;
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