Robust Calibration of Financial Models Using Bayesian Estimators

نویسندگان

  • Alok Gupta
  • Christoph Reisinger
چکیده

We consider a general calibration problem for derivative pricing models, which we reformulate into a Bayesian framework to attain posterior distributions for model parameters. It is then shown how the posterior distribution can be used to estimate prices for exotic options. We apply the procedure to a discrete local volatility model and work in great detail through numerical examples to clarify the construction of Bayesian estimators and their robustness to the model specification, number of calibration products, noisy data and misspecification of the prior.

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تاریخ انتشار 2012