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Computational Economics

, Volume 22, Issue 2–3, pp 113–138 | Cite as

An Implementation of Bouchouev's Method for a Short Time Calibration of Option Pricing Models

  • Carl Chiarella
  • Mark Craddock
  • Nadima El-Hassan
Article

Abstract

We analyse the Bouchouev integral equation for the deterministic volatility function in the Black–Scholes option pricing model. We areable to reduce Bouchouev's original triple integral equation to a single integral equation and describe its numerical solution. Moreover we show empirically that the most complex term in the equation may often be safely ignored for the purposes of numerical calculations. We present a selection of numerical examples indicating the range of time values for which we would expect the equation to be valid.

inverse problems calibration integral equations fundamental solutions of PDE 

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Copyright information

© Kluwer Academic Publishers 2003

Authors and Affiliations

  • Carl Chiarella
    • 1
  • Mark Craddock
    • 1
  • Nadima El-Hassan
    • 1
  1. 1.School of Finance and EconomicsUniversity of Technology SydneyBroadwayAustralia

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