Calibration of the (geometric) Bass Local Volatility model

Seminar in Insurance and Economics

SPEAKER: Gudmund Pammer (ETH Zurich).

TITLE: Calibration of the (geometric) Bass Local Volatility model.

ABSTRACT: The Bass local volatility model, introduced by Backhoff-Beiglböck-Huesmann-Källblad, is a Markov model perfectly calibrated to vanilla options at finitely many maturities, approximating the Dupire local volatility model. Conze and Henry-Labordère proposed a fixed-point method for its calibration. We analyze this fixed-point iteration scheme and show linear rate of convergence. Additionally, we introduce the geometric version of the Bass local volatility model, establish its intimate connection to the change of numéraire method of Campi-Laachir-Martini, and provide an efficient method for its computation. The talk is based on joint ongoing work with Beatrice Acciaio, Julio Backhoff, Mathias Beiglböck, Antonio Marini, Lorenz Riess and Walter Schachermayer.


Link to Seminar in Insurance and Economics.