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Journal of Inverse and Ill-posed Problems

Editor-in-Chief: Kabanikhin, Sergey I.

6 Issues per year


IMPACT FACTOR 2016: 0.783
5-year IMPACT FACTOR: 0.792

CiteScore 2016: 0.80

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Source Normalized Impact per Paper (SNIP) 2016: 1.125

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ISSN
1569-3945
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Volume 14, Issue 9 (Dec 2006)

Issues

A multi-parameter regularization approach for estimating parameters in jump diffusion processes

D. Düvelmeyer
  • Department of Mathematics, Chemnitz University of Technology, 09107 Chemnitz, Germany. E-mails: ,
  • Other articles by this author:
  • De Gruyter OnlineGoogle Scholar
/ B. Hofmann
  • Department of Mathematics, Chemnitz University of Technology, 09107 Chemnitz, Germany. E-mails: ,
  • Other articles by this author:
  • De Gruyter OnlineGoogle Scholar

In this paper, we consider the inverse problem of estimating simultaneously the five parameters of a jump diffusion process based on return observations of a price trajectory. We show that there occur some ill-posedness phenomena in the parameter estimation problem, because the forward operator fails to be injective and small perturbations in the data may lead to large changes in the solution. We illustrate the instability effect by a numerical case study. To obtain stable approximate solutions of the estimation problem, we use a multi-parameter regularization approach, where a least-squares fitting of empirical densities is superposed by a quadratic penalty term of fitted semi-invariants with weights. A little number of required weights is controlled by a discrepancy principle. For the realization of this control, we propose and justify a fixed point iteration, where an exponent can be chosen arbitrarily positive. A numerical case study completing the paper shows that the approach provides satisfactory results and that the amount of computation can be reduced by an appropriate choice of the free exponent.

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Published Online:

Published in Print: 2006-12-01


Citation Information: Journal of Inverse and Ill-posed Problems jiip, ISSN (Online) 1569-3953, ISSN (Print) 0928-0219, DOI: https://doi.org/10.1515/156939406779768274.

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