Recovering a piecewise constant volatility from perpetual put option prices
2010 (English)In: Journal of Applied Probability, ISSN 0021-9002, E-ISSN 1475-6072, Vol. 47, no 3, 680-692 p.Article in journal (Refereed) Published
In this paper we present a method to recover a time-homogeneous piecewise constant volatility from a finite set of perpetual put option prices. The whole calculation process of the volatility is decomposed into easy computations in many fixed disjoint intervals. In each interval, the volatility is obtained by solving a system of nonlinear equations.
Place, publisher, year, edition, pages
2010. Vol. 47, no 3, 680-692 p.
Perpetual put option, calibration of models, piecewise constant volatility
IdentifiersURN: urn:nbn:se:uu:diva-134147DOI: 10.1239/jap/1285335403ISI: 000282856000005OAI: oai:DiVA.org:uu-134147DiVA: diva2:372123