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Recovering a Piecewise Constant Volatility from Perpetual Put Option Prices
Published online by Cambridge University Press: 14 July 2016
Abstract
In this paper we present a method to recover a time-homogeneous piecewise constant volatility from a finite set of perpetual put option prices. The whole calculation process of the volatility is decomposed into easy computations in many fixed disjoint intervals. In each interval, the volatility is obtained by solving a system of nonlinear equations.
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- Research Article
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- Copyright © Applied Probability Trust 2010
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