Calibration of the Bass Local Volatility model

Abstract

The Bass local volatility model introduced by Backhoff-Veraguas, Beiglböck, Huesmann, and 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.

References in corpus (8)

• A stochastic control approach to no-arbitrage bounds given marginals, with an application to lookback options
• On a problem of optimal transport under marginal martingale constraints
• Optimal transportation under controlled stochastic dynamics
• A trajectorial interpretation of Doob's martingale inequalities
• The maximum maximum of a martingale with given $n$ marginals
• Pathwise versions of the Burkholder-Davis-Gundy inequality
• Nondifferentiable functions of one-dimensional semimartingales
• A regularized Kellerer theorem in arbitrary dimension