1.Weierstra? Institute for Applied Analysis and Stochastics (WIAS),Berlin,Germany;2.Institute of Applied Mathematics,University of Heidelberg,Heidelberg,Germany
Abstract:
We investigate the problem of calibrating an exponential Lévy model based on market prices of vanilla options. We show that this inverse problem is in general severely ill-posed and we derive exact minimax rates of convergence. The estimation procedure we propose is based on the explicit inversion of the option price formula in the spectral domain and a cut-off scheme for high frequencies as regularisation.