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arXiv · 2311.14567

Calibration of the Bass Local Volatility model

Beatrice Acciaio·Antonio Marini·Gudmund Pammer
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Abstract

The Bass local volatility model introduced by Backhoff-Veraguas, Beiglb\"ock, Huesmann, and K\"allblad is a Markov model perfectly calibrated to vanilla options at finitely many maturities, that approximates the Dupire local volatility model. Conze and Henry-Labord\`ere 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.

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Beatrice Acciaio, Antonio Marini, Gudmund Pammer. 2023-11-24. Calibration of the Bass Local Volatility model. https://doi.org/10.1137/23m1622660

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