Calibration and Filtering of Exponential Lévy Option Pricing Models

The accuracy of least squares calibration using option premiums and particle filtering of price data to find model parameters is determined. Derivative models using exponential Lévy processes are calibrated using regularized weighted least squares with respect to the minimal entropy martingale measure. Sequential importance resampling is used for the Bayesian inference problem of time series parameter estimation with proposal distribution determined using extended Kalman filter. The algorithms c...