Recovery of the time-dependent implied volatility of time fractional Black–Scholes equation using linearization technique

Abstract

Abstract This paper tries to examine the recovery of the time-dependent implied volatility coefficient from market prices of options for the time fractional Black–Scholes equation (TFBSM) with double barriers option. We apply the linearization technique and transform the direct problem into an inverse source problem. Resultantly, we get a Volterra integral equation for the unknown linear functional, which is then solved by the regularization method. We use L1{L_{1}}-forward difference implicit approximation for the forward problem. Numerical results using L1{L_{1}}-forward difference implicit approximation (L1{L_{1}}-FDIA) for the inverse problem are also discussed briefly.