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KaiSqDist
KaiSqDist
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As the title suggests, what is the difference between calibrating an option pricing model (say the Heston model) to market option prices instead of computing their implied volatilities using Black-Scholes and subsequently calibrating the Heston parameters to them?

I assume since "Implied"implied volatilities behave 'better' than prices", that would mean that the calibrated model parameters using option prices would be more inaccurate?

As the title suggests, what is the difference between calibrating an option pricing model (say the Heston model) to market option prices instead of computing their implied volatilities using Black-Scholes and subsequently calibrating the Heston parameters to them?

I assume since "Implied volatilities behave 'better' than prices", that would mean that the calibrated model parameters using option prices would be more inaccurate?

As the title suggests, what is the difference between calibrating an option pricing model (say the Heston model) to market option prices instead of computing their implied volatilities using Black-Scholes and subsequently calibrating the Heston parameters to them?

I assume since "implied volatilities behave 'better' than prices", that would mean that the calibrated model parameters using option prices would be more inaccurate?

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KaiSqDist
KaiSqDist
  • 2.2k
  • 1
  • 4
  • 18

Calibration of Local or Stochastic Volatility Models to Prices vs Implied Volatilities

As the title suggests, what is the difference between calibrating an option pricing model (say the Heston model) to market option prices instead of computing their implied volatilities using Black-Scholes and subsequently calibrating the Heston parameters to them?

I assume since "Implied volatilities behave 'better' than prices", that would mean that the calibrated model parameters using option prices would be more inaccurate?