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Calibration of selfdecomposable Lévy models

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  • Mathias Trabs
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    Abstract

    We study the nonparametric calibration of exponential, self-decomposable Levy models whose jump density can be characterized by the k-function, which is typically nonsmooth at zero. On the one hand the estimation of the drift, the activity measure alpha:= k(0+) + k(0-) and analog parameters for the derivatives are considered and on the other hand we estimate the k-function outside of a neighborhood of zero. Minimax convergence rates are derived, which depend on . Therefore, we construct estimators adapting to this unknown parameter. Our estimation method is based on spectral representations of the observed option prices and on regularization by cutting off high frequencies. Finally, the procedure is applied to simulations and real data.

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    Bibliographic Info

    Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2011-073.

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    Length: 50 pages
    Date of creation: Nov 2011
    Date of revision:
    Handle: RePEc:hum:wpaper:sfb649dp2011-073

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    Related research

    Keywords: adaptation; European option; in nite activity jump process; minimax rates; non linear inverse problem; self-decomposability;

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    References

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