Spectral calibration of exponential Lévy Models [1]



24


Denis Belomestny and Markus Reiβ

e-Tσ2u2m1 /2e-(Tσ2u2/m)m (2/m)2mu2m-2 |u - i|2m-2 du

= ε-2 δ 2 m-7 / /


(T σ02 m


)-1/2

0


-mv1 /mlv2m- (i + m- 1 v- 1 /m)m- 1 dv


=ε


2δ2m-4


2δ2m-4


e-mv1/m


dv


e-zzm-1m1-m


dz


= ε-2δ2m-m-3Γ(m) < ε-2δ2m-m-3(m - 1)m-1 /2e1 -m ~ ε-2m-3-se-m

Consequently, the Kullback-Leibler divergence remains small when choosing
m > 2log(ε-1), but mlog(ε- 1), which gives δ ~ log(ε- 1)-s/2. From the
basic general lower bound result we therefore obtain the asymptotic lower
bound for
μ.

7.4. Lower bound for σ2, γ and λ in the case σ > 0

Since the proof is very similar to the preceding calculations, we only give
the perturbations of the basic triplet
T0 = (σ0, γ0, μ0) with σ0 > 0 which are
least favourable. More details can be found in Belomestny and Reiβ (2005).

For γ we leave σ0 fixed and use a perturbation of the form

u2m/U2m


γ 1 := Y0 + δ,   Fμ 1(u) := 0(u) — δi(u — i)e

For λ we keep σ0 and γ0 fixed and consider

i)m/U2m


1(u) := o(u) + δe--um(u

For σ2 we leave γ0 invariant and consider the perturbation

2m 2m

σ2 := σ2 + 2δ, Fμ 1(u):= 0(u)+ δ(u — i)2e u /U

Each time m is chosen to be of order log(ε-1) and the value of δ > 0 results
from the smoothness class considered.

Acknowledgements

We thank Peter Tankov for intense discussions on different calibration ap-
proaches and for sharing his experience in assessing their practical perfor-
mances. We are grateful for the comments and questions by two anonymous
referees which have led to considerable improvements.



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