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Local volatility calibration using an adjoint proxy

Author

Listed:
  • Gabriel Turinici

    (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

Abstract

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.

Suggested Citation

  • Gabriel Turinici, 2008. "Local volatility calibration using an adjoint proxy," Post-Print hal-00306187, HAL.
    • Handle: RePEc:hal:journl:hal-00306187
    Note: View the original document on HAL open archive server: https://hal.science/hal-00306187v2
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    Cited by:

    1. Gabriel Turinici, 2009. "Robust recovery of the risk neutral probability density from option prices," Analele Stiintifice ale Universitatii "Alexandru Ioan Cuza" din Iasi - Stiinte Economice (1954-2015), Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 56, pages 197-201, November.

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