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Calibrating the model parameters in pricing using the trust region method

Abstract In this paper, we aim to calibration pricing models from market prices. We investigate the problem of calibrating the parameters using the trust region method from given price data. We start with the Hull–White model and formulate the problem by obtaining the first kind integral equation, and then consider the parameter recovery problem of the Black–Scholes model. We apply trust region algorithm for numerical retrieval problems. Numerical simulations are given to illustrate the feasibility of our proposed method.