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The Heston model is represented by the bivariate system of stochastic differential equations (SDE) \begin{align} & d{{S}_{t}}=rS_tdt+{\sqrt\upsilon_t} d{{W}_{1}}(t) \\ & d{{\upsilon}_{t}}=\kappa(\theta-\upsilon_t) dt+\sigma{\sqrt\upsilon_t}d{{W}_{2}}(t) \\ \end{align} The most popular way to estimate the parameters of the Heston model is with loss ...


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I know two papers explaining how to calibrate this kind of models, and one of them explain the impact of the quality of the fit on a pricing model: Aït-Sahalia, Y. (2002, January). Maximum likelihood estimation of discretely sampled diffusions: A closed-form approximation approach. Econometrica 70 (1), 223-262. Azencott, R., Y. Gadhyan, and R. Glowinski ...



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