Calibration of the Bass Local Volatility model

Beatrice Acciaio, Antonio Marini, Gudmund Pammer

Research output: Working paperPreprint

Abstract

The Bass local volatility model introduced by Backhoff-Veraguas--Beiglböck--Huesmann--Källblad is a Markov model perfectly calibrated to vanilla options at finitely many maturities, that approximates the Dupire local volatility model. Conze and Henry-Labordère show that its calibration can be achieved by solving a fixed-point equation. In this paper we complement the analysis and show existence and uniqueness of the solution to this equation, and that the fixed-point iteration scheme converges at a linear rate.
Original languageEnglish
DOIs
Publication statusSubmitted - 2023

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