NDLI: Adjoint-based Monte Carlo calibration of financial market models

Content Provider	Springer Nature Link
Author	Sachs, E. W. Kaebe, C. Maruhn, J. H.
Copyright Year	2009
Abstract	Adjoint methods have recently gained considerable importance in the finance sector, because they allow to quickly compute option sensitivities with respect to a large number of model parameters. In this paper we investigate how the efficiency of adjoint methods can be exploited to speed up the Monte Carlo-based calibration of financial market models. After analyzing the calibration problem both theoretically and numerically, we derive the associated adjoint equation and propose its application in combination with a multi-layer method, for which we prove convergence to a stationary point of the underlying optimization problem. Detailed numerical examples illustrate the performance of the method. In particular, the proposed algorithm reduces the calibration time for a typical equity market model with time-dependent model parameters from over three hours to less than ten minutes on a usual desktop PC.
Ending Page	379
Page Count	29
Starting Page	351
File Format	PDF
ISSN	09492984
e-ISSN	14321122
Journal	Finance and Stochastics
Issue Number	3
Volume Number	13
Language	English
Publisher	Springer-Verlag
Publisher Date	2009-07-11
Publisher Place	Berlin, Heidelberg
Access Restriction	One Nation One Subscription (ONOS)
Subject Keyword	Monte Carlo methods Adjoint equation Applications of mathematical programming Finance /Banking Statistics for Business/Economics/Mathematical Finance/Insurance Mathematical programming methods Multi-layer method Monte Carlo calibration Probability Theory and Stochastic Processes Economic Theory Nonlinear programming Quantitative Finance
Content Type	Text
Resource Type	Article
Subject	Finance Statistics and Probability Statistics, Probability and Uncertainty

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1	Ministry of Education (GoI), Department of Higher Education	Sanctioning Authority	https://www.education.gov.in/ict-initiatives
2	Indian Institute of Technology Kharagpur	Host Institute of the Project: The host institute of the project is responsible for providing infrastructure support and hosting the project	https://www.iitkgp.ac.in
3	National Digital Library of India Office, Indian Institute of Technology Kharagpur	The administrative and infrastructural headquarters of the project	Dr. B. Sutradhar bsutra@ndl.gov.in
4	Project PI / Joint PI	Principal Investigator and Joint Principal Investigators of the project	Dr. B. Sutradhar bsutra@ndl.gov.in Prof. Saswat Chakrabarti will be added soon
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