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Regularized Calibration of Jump-Diffusion Option Pricing Models
Linnaeus University, Faculty of Science and Engineering, School of Computer Science, Physics and Mathematics.
2010 (English)Independent thesis Advanced level (degree of Master (Two Years)), 30 credits / 45 HE creditsStudent thesis
Abstract [en]

An important issue in finance is model calibration. The calibration problem is the inverse of the option pricing problem. Calibration is performed on a set of option prices generated from a given exponential L´evy model. By numerical examples, it is shown that the usual formulation of the inverse problem via Non-linear Least Squares is an ill-posed problem. To achieve well-posedness of the problem, some regularization is needed. Therefore a regularization method based on relative entropy is applied.

Place, publisher, year, edition, pages
2010. , p. 38
Keywords [en]
Regularization, Stochastic Process, Option Pricing, Merton Model, Calibration Problem
National Category
Probability Theory and Statistics
Identifiers
URN: urn:nbn:se:lnu:diva-9063OAI: oai:DiVA.org:lnu-9063DiVA, id: diva2:358488
Presentation
2010-06-23, B3033, B-Building, 10:15 (English)
Uppsok
Physics, Chemistry, Mathematics
Supervisors
Examiners
Available from: 2010-10-22 Created: 2010-10-22 Last updated: 2010-10-22Bibliographically approved

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CiteExportLink to record
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Citation style
  • apa
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  • de-DE
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  • en-US
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  • nn-NB
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Output format
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