Partial Differential Equations - Modelling and ... - ResearchGate
Partial Differential Equations - Modelling and ... - ResearchGate Partial Differential Equations - Modelling and ... - ResearchGate
270 Y. Achdou { ‖ψ‖ B ≤ ¯ψ; } ψ ≥ 0, F =[σ, ¯σ] × [0, 1 − α] × ψ ∈B: . (39) ∣ ψ ≥ ψ a.e. in [−¯z, ¯z] We can make the three observations: 1. The norm of A as an operator from V to V ′ is bounded independently of (σ, α, ψ) inF. 2. The constants in (30) and (31) can be taken independent of (σ, α, ψ) in F. 3. With λ in (30) independent of (σ, α, ψ) inF, the operator A+λI is one to one and continuous from V 2 onto L 2 (R + )and(A + λI) −1 : L 2 (R + ) ↦→ V 2 is bounded with constants independent of (σ, α, ψ) inF. These last points are used for proving the following: Proposition 6 (Bounds). The function γ is bounded in [0,T] by some constant ¯X independent of (σ, α, ψ) in F. The quantities ‖u‖ L ∞ (0,T ;V ), ‖u‖ L 2 (0,T ;V 2 ) and ‖ ∂ ∂t u‖ L 2 ((0,T )×R +) are bounded independently of (σ, α, ψ) in F. Proposition 7 (Sensitivity). There exists a constant C, such that for all (σ, α, ψ), (˜σ, ˜α, ˜ψ) in F, ‖u − ũ‖ L 2 (0,T ;V )+‖u − ũ‖ L ∞ (0,T ;L 2 (R +)) ≤ C ( |σ − ˜σ| + |α − ˜α| + ‖ψ − ˜ψ‖ ) B , ∫ T ∫ (µ(ũ − u ◦ )+˜µ(u − u ◦ )) ≤ C ( |σ − ˜σ| + |α − ˜α| + ‖ψ − ˜ψ‖ ) 2, B 0 R calling u = u(σ, α, ψ) and µ = µ(σ, α, ψ) the solution of (VIP) and the parameters (σ, α, ψ) and the corresponding reaction term (see (34)). Furthermore, let (σ n ,α n ,ψ n ) n∈N be a sequence of coefficients in F such that lim n→∞ (|σ − σ n | + |α − α n | + ‖ψ − ψ n ‖ B ) = 0. With the notations u n = u(σ n ,α n ,ψ n ) and µ n = µ(σ n ,α n ,ψ n ), lim ‖u n − u‖ L n→+∞ ∞ ((0,T )×R +) =0, for all p, 1
Calibration of Lévy Processes with American Options 271 (T i ,x i ); we call ū i =¯p i −x i +S, i ∈ I. The parameters of the Lévy process, i.e. the volatility σ, the exponent α and the function ψ will be found as solutions of a least square problem, where the functional to be minimized is the sum of a suitable Tychonoff regularization functional J R (σ, α, ψ) andof J(u) = ∑ ω i (u(T i ,x i ) − ū i ) 2 , i∈I where ω i are positive weights, and u = u(σ, α, ψ) is a solution of (VIP), with T =max i∈I T i . We aim at finding some necessary optimality conditions satisfied by the solutions of the least square problem. The main difficulty comes from the fact that the derivability of the functional J(u) with respect to the parameter (σ, α, ψ) is not guaranteed. To obtain some necessary optimality conditions, we shall consider first a least square problem where u is the solution of the penalized problem (37) rather than (VIP), obtain necessary optimality conditions for this new problem, then have the penalty parameter ε tend to 0 and pass to the limit in the optimality conditions. Such a program has already been applied in [Ach05] for calibrating the local volatility with American options, see also [AP05b, AP05a] for a related numerical method and results. The idea originally comes from Hintermüller [Hin01] and Ito and Künisch [IK00], who applied a similar program for elliptic variational inequalities. At this point, we should also mention Mignot and Puel [MP84] who applied an elegant method for finding optimality conditions for a special control problem for a parabolic variational inequality. 4.2 Preliminary Technical Results With the aim of finding optimality conditions for the least square problem (not completely defined yet), we first state some results concerning the adjoint of B. Under the assumptions of Proposition 2, it can be checked that the operator B T defined by ∫ ( B T u(x) = k(z) x(e z − 1) ∂u ) ∂x (x) − e2z u(xe z )+(2e z − 1)u(x) dz (40) z∈R is a continuous operator ⎧ ⎪⎨ from V s to V s−2α , if α> 1 2 , from V ⎪⎩ s to V s−1 , if α< 1 2 , from V s to V s−1−ε , for any ε>0, if α = 1 2 . If α> 1 2 , then for all u, v ∈ V α , 〈B T u, v〉 = 〈Bv,u〉. This identity holds for all u, v ∈ V s with s> 1 2 if α ≤ 1 2 .
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270 Y. Achdou<br />
{<br />
‖ψ‖ B ≤ ¯ψ;<br />
}<br />
ψ ≥ 0,<br />
F =[σ, ¯σ] × [0, 1 − α] × ψ ∈B:<br />
. (39)<br />
∣ ψ ≥ ψ a.e. in [−¯z, ¯z]<br />
We can make the three observations:<br />
1. The norm of A as an operator from V to V ′ is bounded independently of<br />
(σ, α, ψ) inF.<br />
2. The constants in (30) <strong>and</strong> (31) can be taken independent of (σ, α, ψ) in<br />
F.<br />
3. With λ in (30) independent of (σ, α, ψ) inF, the operator A+λI is one to<br />
one <strong>and</strong> continuous from V 2 onto L 2 (R + )<strong>and</strong>(A + λI) −1 : L 2 (R + ) ↦→ V 2<br />
is bounded with constants independent of (σ, α, ψ) inF.<br />
These last points are used for proving the following:<br />
Proposition 6 (Bounds). The function γ is bounded in [0,T] by some<br />
constant ¯X independent of (σ, α, ψ) in F. The quantities ‖u‖ L ∞ (0,T ;V ), ‖u‖ L 2<br />
(0,T ;V 2 ) <strong>and</strong> ‖ ∂ ∂t u‖ L 2 ((0,T )×R +) are bounded independently of (σ, α, ψ) in F.<br />
Proposition 7 (Sensitivity). There exists a constant C, such that for all<br />
(σ, α, ψ), (˜σ, ˜α, ˜ψ) in F,<br />
‖u − ũ‖ L 2 (0,T ;V )+‖u − ũ‖ L ∞ (0,T ;L 2 (R +)) ≤ C ( |σ − ˜σ| + |α − ˜α| + ‖ψ − ˜ψ‖<br />
)<br />
B ,<br />
∫ T ∫<br />
(µ(ũ − u ◦ )+˜µ(u − u ◦ )) ≤ C ( |σ − ˜σ| + |α − ˜α| + ‖ψ − ˜ψ‖<br />
) 2,<br />
B<br />
0<br />
R<br />
calling u = u(σ, α, ψ) <strong>and</strong> µ = µ(σ, α, ψ) the solution of (VIP) <strong>and</strong> the<br />
parameters (σ, α, ψ) <strong>and</strong> the corresponding reaction term (see (34)). Furthermore,<br />
let (σ n ,α n ,ψ n ) n∈N be a sequence of coefficients in F such that<br />
lim n→∞ (|σ − σ n | + |α − α n | + ‖ψ − ψ n ‖ B ) = 0. With the notations u n =<br />
u(σ n ,α n ,ψ n ) <strong>and</strong> µ n = µ(σ n ,α n ,ψ n ),<br />
lim ‖u n − u‖ L<br />
n→+∞ ∞ ((0,T )×R +) =0,<br />
for all p, 1