Questions tagged [calibration]
The calibration tag has no usage guidance.
134
questions
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54 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
22 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
32 views
calibration of correlation in vasicek model
how can I calibrate the correlation by numerical integration of the normal bivariate distribution assuming that the standardized asset returns of two firms are described by the single-factor Vasicek ...
1
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0answers
12 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
394 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 "...
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0answers
56 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?
...
1
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1answer
52 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 ...
3
votes
1answer
110 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
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0answers
20 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 ...
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0answers
56 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
62 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
112 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
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0answers
113 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
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0answers
159 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
240 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
76 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
131 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, ...
3
votes
1answer
195 views
QuantLib: Which CalibrationHelper to use for Normal Volatilities
I am using the SwaptionHelper class to create the swaptions.
Reading the documentation: https://www.quantlib.org/reference/class_quant_lib_1_1_swaption_helper.html
I realize that one of the ...
0
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1answer
139 views
Constructing Daily Term Structure
I am very new to QuantLib and am trying to do Swaption Model calibration following the example here:http://gouthamanbalaraman.com/blog/short-interest-rate-model-calibration-quantlib.html
Appreciate ...
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0answers
56 views
Black-Scholes model - Calibration of the risk-free rate
I know there is a lot of content about this topic, but I have not seen a post which gives a satisfying answer to my problem.
I am trying to hedge a European call option with real market data under ...
1
vote
1answer
372 views
Why co-terminal swaptions are that important?
Usually Hull & White is calibrated to co-terminal swaptions. When asking why specifically co-terminal, I get the response that it is just a choice and it depends on the use we intend to do with ...
1
vote
1answer
58 views
Calibrate a model parameter with an error function
Suppose I want to find the implied volatility using an option model from market prices. Surely I can find the implied volatility for each strike price ($k$ different strike prices) for a given ...
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0answers
34 views
CDS ISDA Pricing (usage of accrued in calibration)
I am looking to understand the ISDA CDS Pricing Model for a 1Y "Buy Protection" CDS with Coupon = Quoted Spread = 100bp. Numbers are from Bloomberg.
Cash-Flow Matrix
...
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0answers
44 views
Calibration using only strike price
I have a binary option and want to calibrate it's BS pricing model. I only have a series of Strike Price vs the Option price, no knowledge on time to maturity, volatility, risk free rate or the ...
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0answers
57 views
Procedure of model calibration
Say that your end goal is to price an equity exotic derivative under both Heston and the local volatility models (Black Scholes model with vola dependent on strike and underlying level). Do the ...
0
votes
1answer
143 views
Interest rate swap valuation date convention
When we value interest rate derivatives on any date $t$, we can estimate our future payments using some calibrated forward curve $f_s$, where $s$ is the spot date, and discount these back to $t$ using ...
1
vote
1answer
101 views
Zero-coupon bond price under Rendleman-Bartter Model
let's say that I have simulated the interest rate using the Rendleman-Barttermodel, (which is not the best for rates I know) and then I want to simulate paths for the bond paying 1 at maturity:
$$...
5
votes
1answer
224 views
How frequently is local volatility calibrated to implied vol surface, in practice?
This has two related questions -
How frequently do equity derivative traders re-mark the implied volatility surface -
(i) once a day (e.g. at start of trading day, or end-of-day), or
(ii) ...
2
votes
1answer
252 views
Proof of the Hull & White Model calibration
I have a question about the demonstration of the formula which states that:
If we have an Hull & White Model for the short rate diffusion such that
Then the model is fully calibrated if and only ...
1
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0answers
83 views
How to migrate Octave Levenberg-Marquardt algorithm to Accord.Net (C#)
I am trying to migrate Matlab (Octave) Levenberg-Marquardt algorithm to Accord.Net (C#) but struggling to match input parameters
For example this simple example available in the documentation here:
...
2
votes
1answer
336 views
zero-shift SABR vega and re-calibration of SABR
I have a zero-shifted SABR model, where I need to confirm if the model is generating the calibration and vega's correctly.
The underlying model is the standard SABR lognormal (there is normal as well)...
3
votes
1answer
364 views
LSV model calibration with only few quotes per maturity
At this link I have asked what is the market standard when pricing options in different asset classes. Based on the answers, the standard for FX and equities seems to be the local-stochastic ...
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0answers
66 views
Effective duration and recalibration
I am calculating the effective duration of an interest rate instrument with optionality. I do the following
calibrate an interest rate model to market data: discount curve and ATM swaption vols
use ...
1
vote
1answer
579 views
python scipy optimize minimize arguments for Implied Volatility
I am having some trouble getting the 'correct' solution to a function where I am trying to utilize scipy.optimize.minimize.
In the code below, I create a function <...
7
votes
1answer
154 views
Quanto basket payoff
I have a payoff that is the worst of the returns two indices: S&P500 (SPX) and Euro Stoxx 50 (SX5E).
$\pi = \min \left\{\left(\frac{\text{SPX}_\tau-\text{SPX}_0}{\text{SPX}_0}\right),\left(\frac{\...
4
votes
1answer
555 views
why calibrate volatility and fix the mean reversion
I have had a few experiences or chats with teammates about the Hull-White model.
The famous model has 2 parameters :
The volatility
The mean reversion
Very often I hear that the mean reversion has ...
1
vote
1answer
235 views
CIR calibration
I'm using a CIR short rate model to forecast interest rate paths.
I've been thinking and also searching online about different ways of estimating its parameters (a, b and sigma). While there are a ...
3
votes
2answers
153 views
Statistical estimation vs Stochastic calibration of models
I have never been able to deduce the precise differences between model building from the statistical perspective and the stochastic processes/calibration perspective. I can only infer that these are ...
11
votes
1answer
705 views
Zero Coupon Bond prices in One Factor Hull White model
I implemented the one factor Hull White model for educational purposes and I calibrated the model from a given (made up!) yield curve:
The Zero Coupon Bond Prices from this yield curve are:
Taking ...
3
votes
1answer
134 views
Ho & Lee yield curve fitting with zero coupon bond market prices
The Ho & Lee model for interest rates is given by the SDE:
$$
\mathrm d r = \eta(t) \mathrm d t + c\,\mathrm d X
$$
The calibration function for $\eta(t)$ is given by
$$
\eta^*(t)=c^2(t-t^*)-\...
4
votes
1answer
547 views
Intuition for the Effect of Vol of Vol in Heston Model on Volatility Surface
I was hoping someone could describe the economic/mathematical intuition behind the effect that the vol of vol parameter has on the volatility surface, in particular the slope to maturity. Take for ...
0
votes
1answer
205 views
Calibrate SABR-LMM using only data from Bloomberg?
I'm exploring the SABR-LMM model. In particular, have been trying to study the effect of the parameters and their time evolution.
However, the data seems to be a major issue here. Prices for caps/...
2
votes
0answers
164 views
Bootstrapping and Curve Calibration Objective Function
I'm confused about the form of the objective function for some global curve calibration. It seems simple enough: minimized the squared loss of the price of the input instruments and the price ...
2
votes
0answers
61 views
Interest model calibration and binomial trees
Are there any good books for beginners on calibrating interest rate models and creating binomial trees based on these interest rate models and using them in pricing
1
vote
1answer
157 views
Autocall Calibration
I'm trying to price autocalls.
In theory my pricing method is ok (I followed Bouzoubaa's book procedure) but I'm not sure I read anything on calibration of autocalls. Basically my question is what ...
2
votes
1answer
876 views
Hull White Tree Calibration 2
This is actually to extend the question I asked previously and to follow up Bernd's answers.
This is the original link:
Instruments for calibrating Hull White Model
1.
As Bernd mentioned, it's ...
2
votes
1answer
1k views
Instruments for calibrating Hull White Model
I have a few questions regarding hull white calibration, specificly for the trinomial tree model.
1.I am wondering what are the ideal instruments could be used for hull white model calibration? Cap, ...
3
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0answers
100 views
Change of measure when calibrating real-world dynamics
If I want to simulate a process (say, a set of forward rates) under a real-world measure, can I use option prices / implied vols to calibrate some of the parameters and do I need to change the measure ...
6
votes
1answer
416 views
Calibration of Cox-Ingersoll-Ross process that hits zero (Feller condition violation)
I'm considering a Cox-Ingersoll-Ross (CIR) process
$$
dx_{t} = \alpha\left(\theta - x_{t}\right)dt + \sigma \sqrt{x_{t}}\,dW_{t}\,,\qquad \alpha,\beta,\sigma > 0
$$
which by assumption has $2\...
1
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0answers
34 views
amount of data - option pricer calibration
A practical question. When you calibrate an option pricer (whatever the model is), do you use data from several days or just one day (last trading day)? I noted some papers use data from one single ...
