Calibration of the Bass Local Volatility model
Mathematical Finance
2025-07-31 v2 Probability
Abstract
The Bass local volatility model introduced by Backhoff-Veraguas, Beiglb\"ock, Huesmann, and K\"allblad is a Markov model perfectly calibrated to vanilla options at finitely many maturities, that approximates the Dupire local volatility model. Conze and Henry-Labord\`ere show that its calibration can be achieved by solving a fixed-point equation. In this paper we complement the analysis and show existence and uniqueness of the solution to this equation, and that the fixed-point iteration scheme converges at a linear rate.
Keywords
Cite
@article{arxiv.2311.14567,
title = {Calibration of the Bass Local Volatility model},
author = {Beatrice Acciaio and Antonio Marini and Gudmund Pammer},
journal= {arXiv preprint arXiv:2311.14567},
year = {2025}
}