Questions tagged [calibration]
The calibration tag has no usage guidance.
165
questions
-2
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0answers
29 views
What are possible research questions about CKSL and CIR model, FX calibration, Bollinger bands?
What are, in your opinion, some interesting open questions (still to be further investigated from a theoretical perspective) about the CKLS$^{1}$ model (and in particular the CIR model) for the ...
0
votes
1answer
56 views
When are parameters calibrated using one option type applicable to price other option types on the same underlying?
I am coding up some basic models to show prospective employers, but I am forced to guess "what is done in practice" since I don't yet work in the industry. I am implementing various ...
2
votes
1answer
322 views
Risk Neutral Valuation, Drifts and Calibration
Lets consider a pricing model like Vasicek.
Apparently, if you calibrate a derivatives pricing model to market prices this gives you risk neutral parameters. Its not clear to me as to WHY this will ...
1
vote
1answer
59 views
What is the definition of “co-terminal swaptions”? why they are important in the calibration process?
could anyone help me understand the definition of "co-terminal" swaptions? What are they? Can you provide an example to illustrate? And why such instruments are important in model ...
1
vote
1answer
99 views
Calibration of Heston model with stochastic short rate
I have following Heston model with stochastic short rate:
\begin{eqnarray*}dS\left(t\right)&=&r\left(t\right)S\left(t\right)dt+\nu\left(t\right)S\left(t\right)dW^{S}\left(t\right)\\dr\left(t\...
0
votes
0answers
22 views
Interest rate caps and floors - where to get data [duplicate]
Hey I need some prices of interest rate caps and floors for model calibration. Where can I get (or eventually buy) data?
1
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0answers
57 views
Can you calibrate the Heston model using stock price trajectories?
I'm interested in calibrating the Heston model so I was reading about it online. All procedures I could find was using market prices for European call options and using the (semi-)closed-form ...
1
vote
2answers
107 views
Calibrate Hull-white one factor model with swaption in analytical formula
I've been trying to calibrate Hull-white one factor model with swaption but I have a trouble making closed form solution of swaption
Below is the part of paper I've been referencing to
https://people....
0
votes
1answer
93 views
Theoretical and practical drawbacks of using Deep Learning for calibration and pricing
I am investigating the suitability of using deep learning for pricing and calibration for the full implied volatility surface. Such examples of their application are in papers here and here. During ...
0
votes
1answer
86 views
Calibrating OU parameters using AR(1)
I have a mean reverting time series and want to find the Ornstein-Uhlenbeck (OU) parameters of it. I researched the internet and found that we can calibrate the model as a simple AR(1) process,
$$\...
3
votes
1answer
141 views
Stochastic Volatility vs Vanna-Volga
I'm working on the calibration of the Heston Stochastic Volatility Model for some FX option data for my bachelor thesis and I was asked "Why should people use Heston instead of other simple ...
2
votes
1answer
139 views
calibration of a local volatility model
Generally speaking, when calibrating a local volatility model a la Dupire to European vanilla calls, should I use the numerically (PDE or Monte Carlo) solved price for the vanilla call in the cost ...
1
vote
0answers
42 views
calibration of local volatility to
I'm looking to understand the practical details of calibrating local volatility to option prices for a range of different expiries using the Dupire local volatility equation. Would appreciate some ...
1
vote
0answers
51 views
MatLab code does not work for Heston model calibration
I am trying to calibrate Heston model on some data and I have the following code. Code is supposed, after it reads the data, to give back 5 parameters. However, I get an empty answer from MatLab. Does ...
1
vote
0answers
105 views
Heston Model Calibration with MatLab: model prices do not fall in the bid-ask range
I am currently implementing the MatLab code reported below for the calibration of Heston Model. The code seems fine and, by reading the paper where I took the code, I was able to calibrate and price ...
0
votes
0answers
89 views
Vasicek Model With Jumps
I'm trying to calibrate a mean-reverting, jump diffusion model using the outline provided on page 11 here:
http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.40.3489&rep=rep1&type=pdf
...
1
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0answers
83 views
Calibrate Geometric Brownian Motion of trading volume time series
Let's say I'm modeling the trading volume of a stock price (e.g. Apple Inc.) to follow a Geometric Brownian Motion and I want to estimate the parameters (i.e. drift and volatility) using historical ...
1
vote
1answer
52 views
Calibration when characteristic function is not known
The prices of the call and put options can be quickly calculated using many methods using the form of the characteristic function. But how to calibrate a model when we don't know the characteristic ...
1
vote
1answer
147 views
Calibration Hull-White
This is more a conceptual question around calibration. My objective is to calibrate a 1-factor Hull White model, and my question relates to calibrating a and sigma (both constants) to swaptions.
Let's ...
1
vote
0answers
233 views
1 Factor Hull And White Swaption Calibration
I'm trying to calibrate a Hull and White model with constant volatility, mean reversion and theta such that the model can reproduce the initial Term Structure. I'm using this python code adapted from &...
3
votes
0answers
85 views
Explicit expression for option prices in SABR?
I am trying to get a grip of the current state of research regarding option pricing in the SABR model.
Am I correct in that, so far, there is no known general formula for the option price in the SABR ...
1
vote
0answers
75 views
Derivation of $u=e^{\sigma\sqrt{dt}}$ and $d=e^{-\sigma\sqrt{dt}}$
Anyone could provide me a proof of how, starting from $\frac{dS_T}{S_t}\sim \operatorname{N}(\mu dt,\sigma^2 dt)$ with $p:=\frac{e^{rdt}-d}{u-d}$, we can obtain the parameters $u$ and $d$ as from ...
2
votes
1answer
224 views
Hull-White Monte Carlo simulation - mean reversion function
Quite new to implementing Hull white model in Monte Carlo simulation, hope to get help for 1. how to get the function $\theta$ in the following formula (the function used to match initial term ...
0
votes
0answers
49 views
Carr-madan vs COS method vs other methods
Hey during calibration we have to calculate option prices very fast. The most popular method was developed by Carr-Madan, but COS method also is very popular. The problem is for example with Variance ...
1
vote
1answer
107 views
Heston model on currency
We could have the formula for Heston model for currency as (under the Risk-neutral measure for $r_d$) -
$dS_t = \left( r_d - r_f ...
3
votes
2answers
330 views
Forward skew generated by Local Vol model
I'm digging into the properties of the Local Vol model and I become confused with statements made by authors in papers/textbooks (without explanations) like, "The forward skew in local vol model ...
0
votes
0answers
62 views
Two questions about COS method
Hey I have some problem with COS method. Here is the paper of Fang and Oosterlee https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.466.267&rep=rep1&type=pdf
Why in table 1.1 they ...
0
votes
0answers
83 views
Calibration of the Ho Lee model in Excel only based on historical treasury rates (3 months)
I would like to calibrate the Ho Lee model
$dr_t=θ_tdt+σdW_t$
with
$θ(t)= F_t(0,t)+σ^2$
in Excel based on a time series of 3-month treasury rates and then compare the real time series with that ...
0
votes
0answers
217 views
Calibration and comparison of the Vasicek model and Ho-Lee model
I would like to calibrate the Hoo-Lee model and the Vasicek model to a historical interest rate series and compare the interest rate development of both models with the historical interest rate series....
1
vote
1answer
42 views
Calibration data selection - basic rules
Hey I found following rules for selecting data for calibration (source: "Kou Jump Diffusion Model: An Application to the Standard and
Poor 500, Nasdaq 100 and Russell 2000 Index Options" by ...
6
votes
1answer
155 views
How to choose the martingale measure in incomplete markets
Hey I know that when market is incomplete, then we have to choose an equivalent martingale measure (I heard about Escher Transform martingale measure, Mean correcting martingale measure, minimal ...
0
votes
1answer
83 views
How to estimate the risk-free rate when pricing options - calibration
I would like to calibrate my model to the current call option prices (with 17 different maturity times) but I don't know how to choose a risk-free rate in this case.
3
votes
1answer
123 views
PnL due to model recalibration and its relationship with hedging error
Consider the case where at t=0, I calibrate my model to the market, but at t=1 my model is no longer able to recover the price in the market, so it needs recalibration. Say I have delta hedged my ...
4
votes
1answer
100 views
How to calibrate models with unbounded parameter space
I am calibrating the Heston model with sequential quadratic programming algorithm. It turns out that the volatility surfaces I am calibrating to can be fit very well with extreme values of mean ...
0
votes
0answers
104 views
Bond Options Calibration to market volatility using SABR Model
I'm trying to calibrate bond option implied volatility from SABR model to market volatilities, I tried calibration in python but the smile isn't correctly matching with market volatility?
Any help is ...
2
votes
0answers
40 views
Local v/s global calibration for a Bermudan Option (calibrate co-terminals vs entire matrix)
I am quite new to rates modeling and I have a question on the pros and cons of calibrating to larger set of vanilla instruments v/s calibrating to an exotic's 'natural' hedges. For example, I could ...
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0answers
21 views
Hull & White 1F - What is the appropriate calibration portfolio for Libor indexed structured note?
I'm wondering what is the best swaptions or caps portfolio I could use to calibrate the two parameters of H&W 1F model for a structured note with optionality on Libor underlying.
Let's suppose ...
3
votes
2answers
658 views
What does it mean to “calibrate vols”
As a beginner, it can sometimes be hard to discern what different terms and phrases mean in QF. I've heard multiple people such as academics and market-makers say things like "calibrate vols" or "...
4
votes
0answers
269 views
Libor Market Model with SABR Calibration
What is the industry practice in calibrating SABR Libor Market Model? Do you first calibrate the SABR model using market data and then implement the libor market model with the calibrated parameters?
...
3
votes
1answer
150 views
Heston Monte Carlo or FFT Pricing
I am trying to better understand the Heston model and its implementation. It seems like a lot of people use the FFT method for calculating the call prices during the Heston calibration, but the Monte ...
6
votes
1answer
484 views
Implied vol and model calibration for an american option on a dividend paying stock - is there a market standard pricing model?
In terms of calibrating a pricing model to observed prices for American options on a dividend paying stock, is there a standard way of doing this in practice?
My initial thought was to use CRR ...
1
vote
0answers
26 views
Goodness of Calibration Test
are there some tests which are usually performed in order to ensure that a calibration procedure is sound? That is, say you have a model depending on N parameters and one tries to fit them in order to ...
1
vote
0answers
81 views
Calibration of G2++ two factor interest rate model using Kalman filtering
I'm trying to use the Kalman filter to calibrate a G2++ interest rate model in R. I'm reading "Implementing interest rate models: A practical guide" by Park F.C. (2004) where he provides details on ...
1
vote
1answer
113 views
CEV Model Primer
Could someone please point out to a good primer on CEV model?
I am trying to get a basic grasp of the model: The dynamics, advantages & disadvantages, for which payoff it is usually used (Hybrid ...
2
votes
1answer
166 views
how does stochastic volatility models generate smiles?
When calibrating call price with the BS-model, we achieve some parameters and especielly we achieve $\sigma^*$.
Now, lets say I will price call options using these parameters. Then we achieve, lets ...
2
votes
0answers
167 views
Stochastic Volatility Models Real World Calibration
I am trying to find some research pertaining to the historical (or real world) calibration of stochastic volatility models.
For example, in applications such as counterparty credit risk (IMM) or ...
2
votes
1answer
543 views
PD calibration using Bayes formula
When calculating ECLs for loans under IFRS 9, one of the requirements is that the PD estimates have to be Point-in-time ($PD_{PIT}$) rather than through-the-cycle ($PD_{TTC}$).The setting is as ...
2
votes
1answer
495 views
Hull-White calibration volatility as a function of time
I need some help for the parametrization of the volatility parameter in the Hull-White model.
I have the necessary Caplet vols and I calibrated the HW model to match the Caplet and hence the Cap ...
0
votes
1answer
144 views
Calibrating Heston model parameters using the Active-set method and Levenberg–Marquardt
Background: We're estimating the parameters of the Heston model from current market data of options. This is to be implemented using the active-set method (see section 16.5 here) and the Levenberg-...
2
votes
1answer
170 views
SABR Calibration
I need to generate the Volatility Surface of call options on S&P500 index, my
dataset contains implied volatilities regarding various expiration dates for various strike prices.
My doubt is, ...
