Journal of Applied Mathematics 
Volume 2007 (2007), Article ID 62098, 8 pages
doi:10.1155/2007/62098
Research Article

Recovery of Time-Dependent Parameters of a Black-Scholes-Type Equation: An Inverse Stieltjes Moment Approach

Marianito R. Rodrigo1 and Rogemar S. Mamon2

 1Departamento Académico de Matemáticas, Instituto Tecnológico Autónomo de México, Mexico 14200, D. F., Mexico
2Department of Statistical and Actuarial Sciences, University of Western Ontario, ON N6A 1Y2, Canada
Received 21 February 2007; Revised 22 May 2007; Accepted 13 August 2007

Recommended by Wolfgang Schmidt

Abstract

We show that the problem of recovering the time-dependent parameters of an equation of Black-Scholes type can be formulated as an inverse Stieltjes moment problem. An application to the problem of implied volatility calculation in the case when the model parameters are time varying is provided and results of numerical simulations are presented.