Medarhri Ibtissam ; Aboulaich Rajae ; Debit Naima - An alternative algorithm for regularization of noisy volatility calibration in Finance

arima:1492 - Revue Africaine de la Recherche en Informatique et Mathématiques Appliquées, December 13, 2016, Volume 23 - 2016 - Special issue for LEM2I 2016 - https://doi.org/10.46298/arima.1492
An alternative algorithm for regularization of noisy volatility calibration in Finance

Authors: Medarhri Ibtissam ; Aboulaich Rajae ; Debit Naima

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.


Volume: Volume 23 - 2016 - Special issue for LEM2I 2016
Published on: December 13, 2016
Submitted on: December 9, 2016
Keywords: Local Volatility calibration,Inverse Problems,Tikhonov regularization,Morozov's principle,Lagrangian Relaxation,Uzawa method,[MATH] Mathematics [math]


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