Inverse problems and regularization techniques in option pricing



Option-price based calibration of stochastic volatility models under fast mean reversion poses quite challenging inverse problems. Nevertheless, in this note we remark that by an appropriate multi-scale asymptotic analysis, one can calibrate the models in a stable way for a number of different asymptotic regimes. These regimes include, but are not restricted to, those studied by Fouque et al. (© 2008 WILEY-VCH Verlag GmbH & Co. KGaA, Weinheim)