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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 ...
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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 ...
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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 ...
Alexandrettto's user avatar
1 vote
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44 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 + \...
Enzo Ben's user avatar
2 votes
0 answers
49 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 ...
sxminho's user avatar
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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\...
Xerium's user avatar
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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, $(\theta, \kappa, v_0, \rho, \xi)$...
Xerium's user avatar
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2 votes
1 answer
107 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 ...
dasfobia's user avatar
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1 answer
83 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....
matt3's user avatar
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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 ...
matt3's user avatar
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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....
khubquant's user avatar
2 votes
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62 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 ...
FrederickLearner's user avatar
1 vote
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63 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) ...
THAT'S MY QUANT MY QUANTITATIV's user avatar
1 vote
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93 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 ...
AJ van Niekerk's user avatar
1 vote
1 answer
242 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 ...
Gloomy's user avatar
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1 answer
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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 ...
THAT'S MY QUANT MY QUANTITATIV's user avatar
1 vote
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103 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 ...
Mehdi's user avatar
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3 votes
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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 ...
EricFlorentNoube's user avatar
1 vote
1 answer
125 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 ...
THAT'S MY QUANT MY QUANTITATIV's user avatar
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Kalman Filtering to estimate parameters of G2++ Model

I'm trying to use Kalman Filtering to estimate the parameters of the G2++ short rate model. For this, I've been using Implementing Short Rate Models: A Practical Guide by F.C. Park. For reference, he ...
Pudge Superior's user avatar
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1 answer
60 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 ...
sleepy's user avatar
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2 votes
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132 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 ...
Starlord22's user avatar
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Implied volatility of Below intrinsic value Heston prices for deep calibraiton

I am trying to generate implied volatility surfaces for European call in the Heston model. I get below intrinsic values for deep ITM, so about 2% of my surface has below intrinsic prices, which doesn'...
girly_quant's user avatar
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LMM (Libor market Model) Correlation Calibration

I use a LMM model from a well known vendor, using a SOFR swap curve and SOFR swaptions. The calibration set include many/all of the ATM swaptions from 1m-1y to 30y-30y and I get a very good fit for ...
Philippe Hatstadt's user avatar
2 votes
0 answers
126 views

Practical consideration for the calibration of an option pricing model

Let us say that I want to calibrate for example the Heston model to some observed prices of European call options, and that I will use some different strikes and some different maturities to do the ...
CVDT's user avatar
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3 votes
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135 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 ...
Yuanlin Dong's user avatar
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113 views

Calibration of LSV models to vanna/volga break-even

In this paper, Labordère, the author computes a probabilistic representation of the the vanna/vomma(volga) break-even levels. He mentions that they can be used to calibrate LSV models to historical ...
Greyearl's user avatar
2 votes
0 answers
99 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'...
StochasticMan's user avatar
1 vote
0 answers
45 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 ...
Sinbad The Sailor's user avatar
2 votes
1 answer
135 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 $T$? $...
Joe's user avatar
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3 votes
0 answers
115 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 ...
Frido's user avatar
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4 votes
1 answer
294 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-...
KaiSqDist's user avatar
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2 votes
1 answer
951 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, ...
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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 ...
Quý Nguyễn's user avatar
1 vote
1 answer
340 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 ...
MadsK's user avatar
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216 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 ...
julian2000P's user avatar
1 vote
0 answers
107 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 ...
RMA's user avatar
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5 votes
2 answers
763 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 ...
Hasek's user avatar
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1 vote
0 answers
132 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 ...
daily's user avatar
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1 vote
0 answers
89 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 ...
CasMath's user avatar
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2 votes
1 answer
247 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}{\...
Olórin's user avatar
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2 votes
0 answers
456 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 ...
julian2000P's user avatar
3 votes
0 answers
194 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 ...
Jesper Tidblom's user avatar
1 vote
0 answers
150 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. ...
zeke's user avatar
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1 vote
1 answer
249 views

A better calibration method available?

i'm facing a new and interesting task: We are calculating a time series of (hypothetical) behavioral portfolios, for which i need a few parameters to calculate the portfolio's weights in each asset. I'...
T123's user avatar
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9 votes
1 answer
777 views

The Holy Grail of Volatility Modelling: The SPX & VIX - Why?

I am currently researching a pre-print article by Julien Guyon & Jordan Lekeufack (2022): Volatility Is (Mostly) Path-Dependent. Their model is quite impressive in both its simplicity, as well as ...
Sinbad The Sailor's user avatar
3 votes
1 answer
318 views

Sabr Calibration not fitting the market volatility

I am trying to calibrate SABR but I do not fit the given volatility. ...
user avatar
2 votes
2 answers
389 views

Workaround for Hull-White short rate model in market without swaptions

Every time I search calibration methods in short-rate models such as Hull-White, I always find information on how to do it with swaptions market data. Yet, I can't find anything about how to do it in ...
Oliver Mohr Bonometti's user avatar
2 votes
0 answers
131 views

Best way to extrapolate on implied volatility

I am doing some standard svd calibration to mark market implied vols in difference to a previous volatility surface. For longer term maturities where there is no market data, I am extrapolating ATM ...
Victor Gl's user avatar
0 votes
0 answers
308 views

Estimating market price of interest rate risk under CIR model

My goal is to find the market price of risk associated with the interest rate under the CIR model whose stochastic differential equation under the physical measure is given: \begin{eqnarray}\label{...
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