Questions tagged [calibration]
The calibration tag has no usage guidance.
236 questions
0
votes
0
answers
32
views
To preserve the forward skew in a stochastic volatility model, are we required to restrict the calibration to part of the Implied Vol surface?
I've understood in my learning journey that LV models have flattening of forward skew especially at longer expiries, and SV models are able to preserve this forward skew. I've the following questions ...
1
vote
1
answer
56
views
Why do calibration objectives differ between LMM and Hull-White Models?
Hull, J., & White, A. (2001) suggest model volatilities are calculated to minimize the differences between model prices and market prices for benchmark Swaptions ("Specifically we...find the ...
- 11
0
votes
0
answers
69
views
To calibrate model volatility, why does one-factor Hull-White Model not just use implied volatility from Swaptions?
For Swaptions of various expiry/tenor combinations, market (implied) volatilities are readily available. For Swaptions with missing expiry/tenor combinations, their market volatilities are linearly ...
- 11
1
vote
1
answer
208
views
Local volatility calibration methods (PDE grid vs using directly the IV smoothed surface)
When we calibrate our local volatility we need to have create a smoothed volatility arbitrage free implied vol surface(for example SSVI or Sabr).
Let's imagine the smoothed implied vol surface as a ...
- 21
3
votes
1
answer
130
views
What is the meaning of the difference of Q measures calibrated to prices vs. implied probabillities?
What's the meaning of the differences between Q measures (and calibrated parameters of a model) fit to prices vs market implied probabilities?
Updated and Clarified Question:
If I calibrate a Merton ...
- 151
2
votes
0
answers
123
views
LSV leverage function calibration
Introduction
I try to understand how to calibrate an Heston-LSV model, and I have trouble with how to use Gyongy theorem.
Here is the model (1):
\begin{align}
dS_t &= rS_t dt + \sigma_{\text{LSV}}(...
- 93
1
vote
0
answers
79
views
Issues with Calibrating Intensity Functions in Illiquid and High-Volatility Markets for Market Making
I am calibrating intensity functions for bid and ask spreads using the Guéant–Lehalle–Fernandez-Tapia model from Olivier Guéant's "Optimal Market Making" paper. However, I'm facing issues ...
- 11
0
votes
0
answers
35
views
1
vote
2
answers
160
views
Calibrating CIR to bond prices
Consider the Hull-White model -
$$dr_t = (\theta_t - kr_t)dt + \sigma_tdw_t$$
We can/have to calibrate $\theta_t$ to the current bond prices $P(0,t)$ and make it consistent with the HJM framework. For ...
- 15
0
votes
1
answer
203
views
swap curve calibration with interpolation using newton-like method
suppose 2 swap market quotes for 1Y and 2Y and that swap payments occur semi-annually.
calibrating / obtaining the discount factors means finding 4 unknowns / discount factors that reproduce the ...
- 49
2
votes
1
answer
77
views
Reducing possible models count for calibration in ARFIMA-GARCH models
I have the question connected with ARFIMA-GARCH models.
I have a time series for which I want to calibrate best model (p,q)-(P, Q) (via BIC) with $ p,q <= 4, P,Q <=2$. GARCH part can be "...
- 243
1
vote
1
answer
99
views
Heston model calibration to option prices and implied volatility
I hope that you are having a great day,
I am trying to write a research paper on the Heston model deep calibration. I noticed during my literature review that the most common approach is to calibrate ...
- 77
1
vote
0
answers
84
views
Parameters bounds for Heston model calibration
Still working on my master thesis and I have a question I have been looking at for some time but can't find a good reason.
I am looking to follow the steps of Horvath et al. (2019) in order to ...
- 77
0
votes
0
answers
70
views
Understanding simple calibration of Hull-White process
I've encountered issues with understanding how to calibrate the Hull-White model without Quantlib package. I want to calibrate this model for the time series of short-rate ($r_1, \cdots,r_n$).
I will ...
1
vote
0
answers
87
views
Calibrating Hull White volatility on swap rate volatility
I'm strugling with the Hull-White 1F model. I'am trying to calibrate the volatility with the swap rate volatility. Here is the model I'am curently working on :
$$
\begin{align}
dr_t = a(b-r_t)dt + \...
- 11
2
votes
0
answers
59
views
Areas of research in calibration of stochastic volatility models
I am working on a thesis in deep calibration of the Heston model, and I wanted to include a section on the historical work, before the use of neural networks in this area.
Thus, I was wondering what ...
- 77
0
votes
0
answers
48
views
QuantLib error: `RuntimeError: negative local vol^2 at... the black vol surface is not smooth enough` for calibrating the SLV model
I am trying to generate the SLV process using QuantLib on real SPX data. The issue that I am having is that calendar arbitrage is being violated. I put my data in a list in my code, and am using $r\...
- 39
0
votes
0
answers
204
views
In the Stochastic-Local Volatility (SLV/LSV) calibration procedure, which surface is used when calibrating the Leverage function
Before we match the leverage function $L(S_t,t)$ to the implied volatility surface generated from the market, we are supposed to calibrate the pure Heston parameters, $(\theta, \kappa, v_0, \rho, \xi)$...
- 39
2
votes
1
answer
149
views
Deep vs "shallow" calibration of option pricing models
I am currently investigating the application of deep learning in calibrating option pricing models, specifically, models of rough volatility, such as rBergomi. While there is a lot of research on ...
- 21
0
votes
1
answer
104
views
Euribor 3M simulation
I am required to simulate the trajectory of the Euribor3M rate as it is crucial for determining the future cash flows of my derivative instrument. I've received guidance to employ the Hull-White model....
- 1
0
votes
0
answers
72
views
Forward ZC bond with Hull-White model
I am interested in finding the price of a forward zero coupon bond B(t0,t1,t2) under the Hull-White model. To arrive at this result, it makes sense to proceed in this way:
calculate ...
- 1
0
votes
1
answer
399
views
How to calibrate a volatility surface using SSVI with market data?
Context
I'm a beginner quant and I'm trying to calibrate an vol surface using SPX Implied Vol data. The model is from Jim Gatheral and Antoine Jacquier's paper https://www.tandfonline.com/doi/full/10....
2
votes
0
answers
68
views
Calibration of Levy models and Stochastic Volatility Models - Data used
I'd like to ask a question regarding something I often come across in research papers.
It's about how authors calibrate Levy Models and Stochastic Volatility Models to compare models' performance, and ...
1
vote
0
answers
70
views
Intuition behind the benefits of Stochastic Local Volatility (SLV) models [duplicate]
There have been various posts on this topic, but they don't really discuss the intuition behind the benefits of the stochastic local volatility (SLV) models over normal stochastic volatility (SV) ...
1
vote
0
answers
120
views
Efficient Method of Moments(EMM) for Stochastic volatility model
We are attempting to calibrate the parameters of the Heston model via EMM on historical stock price returns. However, we are first trying a simple stochastic volatility model using EMM.
We have come ...
1
vote
1
answer
317
views
Quantlib - mismatch with BBG Swap
I'm trying to price a CZK swap via Quantlib with BBG data, so far nothing complicated but I can't seem to match the floating leg cashflows, and NPV, when I price my swaps, even if I find the right Par ...
- 21
0
votes
1
answer
227
views
Calibrating the Heston with the Levenberg-Marquardt algorithm
I am trying to implement the Levenberg-Marquardt algorithm similarly to Cui et al. Full and fast calibration of the Heston stochastic volatility model, 2017 here (although using a different method to ...
2
votes
1
answer
251
views
Sabr practical calibration
What practical methods can be employed to address the calibration challenges of the initial SABR model for very far strikes, particularly in the context of pricing CMS, without over-parameterizing the ...
- 43
3
votes
0
answers
394
views
Which C++ implementations of Levenberg-Marquardt does the "industry" use?
According to your various experience, is there an industry consensus about which C++ implementation of the Levenberg-Marquardt algorithm to use ?
I came across two places where it was the C numerical ...
- 271
1
vote
1
answer
204
views
Calibration of Heston using implied vol as $v_0$
I am looking at the difference if you calibrated the heston from market data using objective function minimisation.
In scenario 1, I calibrate all the parameters from market data
In scenario 2, I ...
0
votes
1
answer
120
views
Forward variance in rough heston model
When calibrating or trying to approximate the rough heston model by a neural network, why is it done according to the hurst parameter, the correlation, the volatility of volatility and the forward ...
- 1
2
votes
0
answers
212
views
Volatility Surface Construction: Ask IV, Bid IV and Mid IV
I am presently engaged in a project wherein my objective is to construct a volatility surface utilizing either the SVI parameterization or the SABR model, leveraging real market data. Initially, I ...
- 87
3
votes
0
answers
211
views
How to calibrate an O-U process based on historical data?
Background: I have been working on my master thesis project for the last few months and gave the final presentation on the 2023-06-01. As a part of the master thesis project, I did a complete ...
- 31
2
votes
0
answers
108
views
Good resources about Volatility Calibration with code Snippet
As I just landed in the quantitative finance world, I would like to dig deeper into Volatility Surfaces construction.
I have a good theoritical background ( I'm familiar with volatility models ) but I'...
1
vote
0
answers
50
views
STOXX50 and VSTOXX joint calibration
I am currently researching the joint calibration problem of SPX and VIX. The idea is that: VIX options are derivatives on the VIX, which itself is derived from SPX options and should thus be able to ...
2
votes
1
answer
150
views
Can volatility assume negative values under multi-factor HJM framework?
I could find any reference restricting the sign of the volatilities in the multi-factor HJM framework.
Can someone please confirm if $\sigma_i(t,T)$ can assume negative values for some $i,t$ and $T$?
$...
- 301
3
votes
0
answers
119
views
Options skew: when is a perfect fit desirable?
I'm still troubled by a rather basic question, namely when is a perfect fit to the vanilla skew really necessary?
I think if you are trading vanilla options and/or Europeans that can in theory be ...
- 2,681
4
votes
2
answers
463
views
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-...
- 2,231
3
votes
1
answer
2k
views
Recovery Rates in CDS valuation
I am pricing CDS calibrating the default probabilities intensities using CDS spreads from Markit.
Those spreads are given with a recovery.
I have two questions regarding the recovery:
In Option, ...
- 45
0
votes
0
answers
45
views
How to calibrate short-rate model (Hull-White) using historical domestic IBOR curve without other derivative price? [duplicate]
I'm trying to calibrate Hull White model in VietNam market to value IRS, CSS products which are not publicly traded.
dr(t)=(θ(t)−αr(t))dt+σ(t)dW(t)
I only ...
- 11
1
vote
1
answer
429
views
Volatility surface
When fitting/calibrating a option model like heston to option data, what are some useful data handling to do?
The basic thing is to remove all options with no trade/volume, but how many maturities ...
- 11
0
votes
0
answers
260
views
Are my fitted Vasicek model parameters market consistent or realistic?
In view of this question I asked some time ago, I tried to calibrate a Vasicek model to some cap volatilities, given as follows. I consider the maturities (in years)
$$
0.5,1,2,3,4,5,7,10,15,20
$$
and ...
- 195
1
vote
0
answers
128
views
Interest Rate Calibration and Backtesting under Fed's raising rates 2022-2023
With the Fed raising interest rates so fast and so drastically, classical interest rate models such as the Black Karasinski (BK), Hull-White (HW), etc., may have trouble calibrating to current rate ...
- 11
5
votes
2
answers
956
views
Pricing and hedging caps and floors on illiquid emerging markets
I'm tasked with the problem of setting up a cap/floor trading on an emerging market which doesn't have any interest rate derivatives traded yet besides plain vanilla interest rate swaps. We intend to ...
- 853
1
vote
0
answers
158
views
ESSVI calibration problem in translating parameter bounds
I am trying to implement the calibration algorithm presented in the "ESSVI Implied Volatility Surface" white paper from Factset by Akhundzadeh et al.
The eSSVI model includes 2 variables ...
- 11
1
vote
0
answers
104
views
Calibration period
I want to calibrate some model to market data. This could fx be Bates, Kou, Black-Scholes, etc. So, for each model we have a set of parameters which need to be estimated through calibration. Now, my ...
- 59
2
votes
2
answers
453
views
Initial forward variance curve calibration
Let $V_t^{T_1, T_2}$ be the forward variance swap rate for the period $[T_1, T_2]$, seen from $t$ (see for instance Lorenzo Bergomi's Smile Dynamics II) and let $\xi_t^T = V_t^{T,T} = \frac{\partial}{\...
- 1,232
2
votes
0
answers
614
views
How does one calibrate a Vasicek model to actual cap prices?
I am trying to calibrate a Vasicek model given by
$$
dr(t) = k[\theta - r(t)] dt + \sigma dW(t), \quad r(0) = r_0
$$
where $k, \theta, \sigma, r_0 > 0$. I am using the book by Brigo and ...
- 195
3
votes
0
answers
307
views
Useful methods to avoid degenerate calibration? (Heston model in my case)
I have implemented a Levenberg-Marquardt(LM) based method to calibrate the Heston model against market data by minimizing a weighted $L^2$-norm of differences of market vs model prices. Pretty ...
- 741
1
vote
0
answers
216
views
Implied volatility from local volatility versus market implied volatility
Does the local volatility flattens the (existing not forward) skew faster than what we observed in the implied volatility surface?
The process is:
Get market implied volatilities
Fit a IV model (i.e. ...
- 11