Author(s)

Frédéric Abergel, Rémy Tachet des Combes, Riadh Zaatour

Laboratory MICS, Centrale Supélec, Chatenay Malabry, France.

Consistently fitting vanilla option surface is an important issue in derivative modelling. In this paper, we consider three different models: local and stochastic volatility, local correlation, hybrid local volatility with stochastic rates, and address their exact, nonparametric calibration. This calibration process requires solving a nonlinear partial integro-differential equation. A modified alternating direction implicit algorithm is used, and its theoretical and numerical analysis is performed.

Local Stochastic Volatility, Calibration, Derivative Pricing, Partial Integro-Differential Equations

Abergel, F. , des Combes, R. and Zaatour, R. (2017) Nonparametric Model Calibration for Derivatives. Journal of Mathematical Finance, 7, 571-596. doi: 10.4236/jmf.2017.73030.