Simultaneous Calibration of European Option Volatility and Fractional Order under the Time Fractional Vasicek Model.

In this paper, we recover the European option volatility function σ (t) of the underlying asset and the fractional order α of the time fractional derivatives under the time fractional Vasicek model. To address the ill-posed nature of the inverse problem, we employ Tikhonov regularization. The Alternating Direction Multiplier Method (ADMM) is utilized for the simultaneous recovery of the parameter α and the volatility function σ (t) . In addition, the existence of a solution to the minimization problem has been demonstrated. Finally, the effectiveness of the proposed approach is verified through numerical simulation and empirical analysis. [ABSTRACT FROM AUTHOR]