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  • Author: R. Krämer x
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We introduce and analyze moduli of continuity for specific classes of Nemytskii operators on spaces of continuous functions, which are given by kernels, strictly monotone in their second argument. Such operators occur as non-linear (outer) mappings for certain problems of option pricing within the Black–Scholes model for time-dependent volatility. This nonlinear mapping can be seen to be continuous, however its convergence properties are poor. Our general results allow to bound the related moduli of continuity, both for the forward and backward non-linear mappings. In particular we explain the observed ill-conditioning of the nonlinear backward problem. The analysis uses some abstract local analysis of index functions, which may be of independent interest.

We investigate the applicability of the method of maximum entropy regularization (MER) to a specific nonlinear ill-posed inverse problem (SIP) in a purely time-dependent model of option pricing, introduced and analyzed for an L 2 -setting in [9]. In order to include the identification of volatility functions with a weak pole, we extend the results of [12, 13], concerning convergence and convergence rates of regularized solutions in L 1 , in some details. Numerical case studies illustrate the chances and limitations of (MER) versus Tikhonov regularization (TR) for smooth solutions and solutions with a sharp peak. A particular paragraph is devoted to the singular case of at-the-money options, where derivatives of the forward operator degenerate.