All ETDs from UAB

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.

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