This paper concerns an inverse problem of recovering implied volatility in short-term interest rate model from the market prices of zero-coupon bonds. Based on lineariza-tion, an analytic solution, which is given as a...This paper concerns an inverse problem of recovering implied volatility in short-term interest rate model from the market prices of zero-coupon bonds. Based on lineariza-tion, an analytic solution, which is given as a power series, is derived for the direct problem.By neglecting high order terms in the power series, an integral equation about the pertur-bation of volatility is formulated and the Tikhonov regularization method is applied to solvethe integral equation. Finally numerical experiments are given and the results show that the method is effective.展开更多
基金Supported by the National Natural Science Foundation of China(11171349)
文摘This paper concerns an inverse problem of recovering implied volatility in short-term interest rate model from the market prices of zero-coupon bonds. Based on lineariza-tion, an analytic solution, which is given as a power series, is derived for the direct problem.By neglecting high order terms in the power series, an integral equation about the pertur-bation of volatility is formulated and the Tikhonov regularization method is applied to solvethe integral equation. Finally numerical experiments are given and the results show that the method is effective.
