Medarhri Ibtissam ; Aboulaich Rajae ; Debit Naima
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An alternative algorithm for regularization of noisy volatility calibration in Finance
arima:1492 -
Revue Africaine de Recherche en Informatique et Mathématiques Appliquées,
December 13, 2016,
Volume 23 - 2016 - Special issue for LEM2I 2016
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https://doi.org/10.46298/arima.1492
An alternative algorithm for regularization of noisy volatility calibration in FinanceArticle
1 Laboratoire d'Etudes et Recherche en Mathématiques Appliquées
This contribution is an extension of the work initiated in [1], presenting a strategy for the calibration of the local volatility. Due to Morozov's discrepancy principle [6], the Tikhonov regularization problem introduced in [7] is understood as an inequality-constrained minimization problem. An Uzawa procedure is proposed to replace this latter by a sequence of unconstrained problems dealt with in the modified Thikonov regularization procedure in [1]. Numerical tests confirm the consistency of the approach and the significant speed-up of the process of local volatility determination.