Düring, B. (2007). A semi-smooth Newton method for an inverse problem in option pricing. Proceedings in Applied Mathematics and Mechanics, 7(1), 1081105–1081106. https://doi.org/10.1002/pamm.200700708
parameter identification; option pricing; Management, Monitoring, Policy and Law; Geography, Planning and Development; semi-smooth Newton method
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Abstract:
We present an optimal control approach using a Lagrangian framework to identify local volatility functions from given option prices. We employ a globalized sequential quadratic programming (SQP) algorithm and implement a line search strategy. The linear-quadratic optimal control problems in each iteration are solved by a primal-dual active set strategy which leads to a semi-smooth Newton method. We present first- and second-order analysis as well as numerical results.
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Project title:
Numerics and modeling of nonlinear partial differential equations for the description of credit and price risks (Deutsche Forschungsgemeinschaft)
