Calibration of the Bass Local Volatility model
arXiv:2311.14567 · doi:10.1137/23M1622660
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.