Levenberg-Marquat algorithm and Bayesian inference for SABR implied volatility smile parameter estimation

27/10/2020

Under the hypothesis of the underlying asset of an option following the SABR model, we tested the Levenberg-Marquardt algorithm for volatility smile interpolation using the price of European options. This prove to be fast in the simulated framework. However, the real framework sometimes implies uneven distribution of quotes (with respect to relative strikes) or the presence of outliers, these two factors affect significantly the performance of the paremeter estimation using this algorithm. In this work it was also used Bayesian inference as an alternative to mitigate these limitations. We employed this approach on SABR's α parameter with good results.

Autores da comunidade :

• 

  F

  Francisco Pedro Furtado Simões

  ist187816

Orientadores desta instituição:

• 

  C

  Cláudia Rita Ribeiro Coelho Nunes Philippart

  ist12953

mathematics - Matemática

por - Português

Instituto Superior Técnico