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A semi-smooth Newton method for an inverse problem in option pricing

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posted on 2023-06-07, 22:40 authored by Bertram Duering
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.

History

Publication status

  • Published

Issue

1

Volume

7

Page range

1081105-1081106

Presentation Type

  • paper

Event name

Sixth International Congress on Industrial Applied Mathematics (ICIAM07) and GAMM Annual Meeting

Event location

Zürich

Event type

conference

Event date

2007

Department affiliated with

  • Mathematics Publications

Full text available

  • No

Peer reviewed?

  • Yes

Legacy Posted Date

2012-02-06

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