Inverse Problems in Finances: A Short Survey on Calibration Techniques.

Jorge Zubelli

Keywords: Inverse Problems | quantitative finances | mathematical methods in finances | calibration

We survey the problem of calibrating the volatility by using quoted option prices. This is done within the framework of regularization theory provided by inverse problem theory. We start with a simplified model of pure time-dependent volatility to gather insight on the nature of ill-posedness of the problem. We briefly review a number of recent contributions to the field and highlight its activity.

Anexos:

• invprobfin.ps