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The inverse volatility problem for American options

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  • The problem of determining equity volatility from a knowledge of American option prices for a range of exercise (strike) prices and expirations is solved by minimization of a convex functional.

    Mathematics Subject Classification: Primary: 35K10; Secondary: 65N21.


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  • Figure 1.  Flowchart

    Figure 2.  GOOGLE put option data, 19th April, 2013

    Figure 4.  Maturity interval $ 14\le T\le 21 $: iterations of $ g(S_0, t_0, K, T) $

    Figure 5.  The functional $ G $ for maturity $ 14\le T\le 21 $

    Figure 3.  Recovered Google Volatility

    Figure 6.  Comparing option and recovered prices from the Dupire Equation

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