Sequential quadratic programming method for volatility estimation in option pricing
| Type of Publication: | Journal article |
| Author: | Düring, Bertram; Jüngel, Ansgar; Volkwein, Stefan |
| Year of publication: | 2008 |
| Published in: | Journal of Optimization Theory and Applications ; 139 (2008), 3. - pp. 515-540. - ISSN 0022-3239 |
| DOI (citable link): | https://dx.doi.org/10.1007/s10957-008-9404-4 |
| Summary: |
Our goal is to identify the volatility function in Dupire’s equation from given option prices. Following an optimal control approach in a Lagrangian framework, a globalized sequential quadratic programming (SQP) algorithm combined with a primal-dual active set strategy is proposed. Existence of local optimal solutions and of Lagrange multipliers is shown. Furthermore, a sufficient second-order optimality condition is proved. Finally, some numerical results are presented underlining the good properties of the numerical scheme.
|
| Subject (DDC): | 510 Mathematics |
| Keywords: | Dupire equation, Parameter identification, Optimal control, Optimality conditions, SQP method, Primal-dual active set strategy |
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DÜRING, Bertram, Ansgar JÜNGEL, Stefan VOLKWEIN, 2008. Sequential quadratic programming method for volatility estimation in option pricing. In: Journal of Optimization Theory and Applications. 139(3), pp. 515-540. ISSN 0022-3239. Available under: doi: 10.1007/s10957-008-9404-4
@article{During2008Seque-18664, title={Sequential quadratic programming method for volatility estimation in option pricing}, year={2008}, doi={10.1007/s10957-008-9404-4}, number={3}, volume={139}, issn={0022-3239}, journal={Journal of Optimization Theory and Applications}, pages={515--540}, author={Düring, Bertram and Jüngel, Ansgar and Volkwein, Stefan} }
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