Recovery of Time-Dependent Parameters of a Black-Scholes-Type Equation: An Inverse Stieltjes Moment Approach

Received 21 February 2007; Revised 22 May 2007; Accepted 13 August 2007Recommended by Wolfgang SchmidtWe show that the problem of recovering the time-dependent parameters of an equationof Black-Scholes type can be formulated as an inverse Stieltjes moment problem. An ap-plication to the problem of implied volatility calculation in the case when the model pa-rameters are time varying is provided and results of numerical simulations are presented.Copyright © 2007 M. R. Rodrigo and R. S. Mamon. This is an open access article distrib-uted under the Creative Commons Attribution License, which permits unrestricted use,distribution, and reproduction in any medium, provided the original work is properlycited.