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Local volatility calibration using an adjoint proxy

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Date
2008
Link to item file
http://hal.archives-ouvertes.fr/hal-00306187/en/
Dewey
Probabilités et mathématiques appliquées
Sujet
local volatility; calibration; adjoint; Dupire formula; implied volatility
Journal issue
Review of Economic and Business Studies
Volume
2
Publication date
12-2008
Article pages
1
Publisher
Editura Universităţii "Al.I. Cuza
URI
https://basepub.dauphine.fr/handle/123456789/396
Collections
  • CEREMADE : Publications
Metadata
Show full item record
Author
Turinici, Gabriel
Type
Article accepté pour publication ou publié
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.

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