Calibrating Models – Inverse Problems

摘要: In the previous chapters we studied several model choices to describe stock price and interest rate dynamics. When using models valuate derivatives or obtain a hedging strategy, used parameters will greatly impact results. While there is broad agreement of how many problems in physics (such as thermal conductivity copper at room temperature), financial markets are fundamentally different. Many market participants have different views on distributions variables, prices liquid assets only represent an economic equilibrium resulting from those views.