Calibration of local‐stochastic volatility models by optimal transport
In: Mathematical Finance, Jg. 32 (2021-08-09), S. 46-77
Online
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Zugriff:
In this paper, we study a semi-martingale optimal transport problem and its application to the calibration of Local-Stochastic Volatility (LSV) models. Rather than considering the classical constraints on marginal distributions at initial and final time, we optimise our cost function given the prices of a finite number of European options. We formulate the problem as a convex optimisation problem, for which we provide a PDE formulation along with its dual counterpart. Then we solve numerically the dual problem, which involves a fully non-linear Hamilton-Jacobi-Bellman equation. The method is tested by calibrating a Heston-like LSV model with simulated data and foreign exchange market data.
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Calibration of local‐stochastic volatility models by optimal transport
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Autor/in / Beteiligte Person: | Wang, Shiyi ; Guo, Ivan ; Loeper, Grégoire |
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Zeitschrift: | Mathematical Finance, Jg. 32 (2021-08-09), S. 46-77 |
Veröffentlichung: | Wiley, 2021 |
Medientyp: | unknown |
ISSN: | 1467-9965 (print) ; 0960-1627 (print) |
DOI: | 10.1111/mafi.12335 |
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