Robust nonlinear filtering of stochastic volatility in finance

ShinIchi Aihara, Arunabha Bagchi

    Research output: Chapter in Book/Report/Conference proceedingConference contributionAcademic

    2 Citations (Scopus)


    Volatility of the stock price is the key to the pricing problem of stock related derivatives in finance. Volatility appears in the diffusion term of the usual modeling of stock prices. One popular approach is to take volatility to be stochastic, and assumes that it satisfies a stochastic differential equation. Taking the stock price to be the observation, we may then pose the filtering problem of estimating the volatility on line based on the stock price data. This is an unconventional filtering problem which we solve in this paper. But even more interesting is the fact that this filtering algorithm is inherently not robust. In the rest of the paper we derive the robust form of this filter.
    Original languageEnglish
    Title of host publicationEuropean Control Conference (ECC 2001)
    Subtitle of host publication 4-7 Sept. 2001
    Place of PublicationPiscataway, NJ
    Number of pages6
    ISBN (Print)972-752-047-2
    Publication statusPublished - 4 Sept 2001
    Event2001 European Control Conference, ECC 2001 - Porto, Portugal
    Duration: 4 Sept 20017 Sept 2001


    Conference2001 European Control Conference, ECC 2001
    Abbreviated titleECC


    • METIS-200985

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