Questions tagged [calibration]

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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
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50 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
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79 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
173 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
114 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 ...
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1 vote
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86 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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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
92 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 ...
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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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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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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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51 views

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
107 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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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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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 ...
OuB's user avatar
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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
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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
108 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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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 ...
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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-...
Kai's user avatar
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2 votes
1 answer
694 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, ...
SPF531's user avatar
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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
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1 answer
291 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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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
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63 views

Using the SABR Model to Calibrate the Implied Volatility Smile/Surface of an American Option

If I already know the implied volatility smile/surface of an American option, can I directly use the SABR model to calibrate the smile/surface, or do I need to make certain adjustments first?
Tony W's user avatar
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1 vote
0 answers
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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
  • 11
5 votes
2 answers
668 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
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103 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
80 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
191 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
320 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
152 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
127 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
  • 11
1 vote
1 answer
221 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
  • 543
9 votes
1 answer
712 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
273 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
316 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
112 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
213 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{...
user53249's user avatar
  • 409
2 votes
3 answers
794 views

Calibrate the SABR model to the implied volatility surface

I'm currently trying to calibrate the SABR model. The question I have is that when I consider papers and other websites I only come across cases where the SABR parameters are calibrated to the implied ...
jsr_dl's user avatar
  • 23
2 votes
1 answer
796 views

Pricing caps/floors on backward-looking USD SOFR with forward-looking LIBOR model

The payoff of a cap/floor is calculated as a payoff of constitutient caplets/floorlets. The SABR volatility model has the implied volatility approximations of Hagan et al. $$\sigma^f_{IV}\approx \...
Hasek's user avatar
  • 764
3 votes
1 answer
269 views

Calibration of a volatility smile model on a partial smile

I'm using a well-known SABR model in order to build an implied volatility surface of caps/floors on a very illiquid market which is entirely missing OTM quotes. What happens to SABR implied smile/...
Hasek's user avatar
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0 votes
0 answers
64 views

Italy Zero Coupon Yields

I am looking for historical data for Treasury bills and bond yields for Italy on a monthly or daily basis. Where can I get this data?
Doreen's user avatar
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0 votes
1 answer
602 views

Calibrating Heston model using implied volatilities

I'm trying to understand how the authers of a paper calibrated their model. We got data on European type options on the S&P500-index period from early 2005 to mid-2009. We have daily data on ...
user826130's user avatar
1 vote
1 answer
208 views

Statistical metric to measure how well does the volatility surface fit the market

Suppose that I have a model for implied volatility surface and want to figure out required recalibration frequency based on historical quotes. Since I have a large range of strikes and tenors over a ...
Hasek's user avatar
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0 votes
1 answer
152 views

Double Heston model calibration in Christoffersen's paper uses 52 sets of market data (each set as of a different date). Why?

In the paper on Double Heston model (2009) from Peter Christoffersen, they say: "Our focus is on explaining why a two-factor model works better than a one-factor model for the purpose of option ...
Sebastian's user avatar
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0 answers
104 views

Why would one need forward prices to perform derivatives pricing?

I am trying to understand the purpose of inputs the software of my company is using. Amongst others it needs calibration instruments, a model type, initial values of the respective underylings and a ...
algebruh's user avatar
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0 answers
77 views

Why calibrate vol based on consensus?

I am starting to work on building vol surfaces using implied vols on the short run mixed up with consensus vols ran through a whole bunch of interpolation/calibration/smoothing process. Although I ...
V1ct0r 6l0r1eux's user avatar
0 votes
0 answers
69 views

Option pricing when stock price follows binomial tree

Assume that the stock price is currently trading at $S_0$. It is known that the stock price follows a binomial tree, such that its price will be either $S_0e^{\theta_u}$ or $S_0e^{−\theta_d}$ over the ...
statwoman's user avatar
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