Advisory Committee Chair
Ian Knowles
Advisory Committee Members
Purushotham Bangalore
Tsun Zee Mai
Marius Nkashama
Sivaguru S Ravindran
Document Type
Dissertation
Date of Award
2014
Degree Name by School
Doctor of Philosophy (PhD) College of Arts and Sciences
Abstract
The inverse problem of determining equity volatility from a knowledge of American option prices for a range of exercise prices and expirations is solved by minimization of a convex functional. This variational approach has distinct advantages over traditional least squares techniques in that, as the associated functional is convex, one typically has a unique global minimum, so that one is not concerned about the steepest descent minimization process "getting stuck" in spurious local minima. This is an enormous advantage numerically in difficult situations. We illustrate the method using examples drawn from recent market data.
Recommended Citation
Mahato, Ajay, "The Inverse Volatility Problem For American Options" (2014). All ETDs from UAB. 2366.
https://digitalcommons.library.uab.edu/etd-collection/2366