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The Calibration of Stock Option Pricing Models Using Inverse Problem Methodology

We analyse the procedure for determining volatility presented by Lagnado and Osher, and explain in some detail where the scheme comes from. We present an alternative scheme which avoids some of the technical complications arising in Lagnado and Osher's approach. An algorithm for solving the resulting equations is given, along with a selection of numerical examples.

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File URL: http://www.business.uts.edu.au/qfrc/research/research_papers/rp39.pdf
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Paper provided by Quantitative Finance Research Centre, University of Technology, Sydney in its series Research Paper Series with number 39.

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Date of creation: 01 Mar 2000
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Handle: RePEc:uts:rpaper:39
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Web page: http://www.qfrc.uts.edu.au/

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  1. Mark Rubinstein., 1994. "Implied Binomial Trees," Research Program in Finance Working Papers RPF-232, University of California at Berkeley.
  2. Rubinstein, Mark, 1994. " Implied Binomial Trees," Journal of Finance, American Finance Association, vol. 49(3), pages 771-818, July.
  3. Carl Chiarella & Mark Craddock & Nadima El-Hassan, 2003. "An Implementation of Bouchouev's Method for a Short Time Calibration of Option Pricing Models," Computational Economics, Society for Computational Economics, vol. 22(2), pages 113-138, October.
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