论文信息 - On maximum entropy regularization for a specific inverse problem of option pricing

On maximum entropy regularization for a specific inverse problem of option pricing

We investigate the applicability of the method of maximum entropy regularization (MER) to a specific nonlinear ill-posed inverse problem (SIP) in a purely time-dependent model of option pricing, introduced and analyzed for an L2-setting in [9]. In order to include the identification of volatility functions with a weak pole, we extend the results of [12] and [13], concerning convergence and convergence rates of regularized solutions in L1, in some details. Numerical case studies illustrate the chances and limitations of (MER) versus Tikhonov regularization (TR) for smooth solutions and solutions with a sharp peak. A particular paragraph is devoted to the singular case of at-the-money options, where derivatives of the forward operator degenerate.

Bernd Hofmann | B. Hofmann | R. Krämer | R. Krämer

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