Podcast #128: We chat with Kent C Dodds about why he loves React and discuss what life was like in the dark days before Git. Listen now.

Questions tagged [calibration]

The tag has no usage guidance.

Filter by
Sorted by
Tagged with
2
votes
1answer
31 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
votes
0answers
37 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 ...
0
votes
0answers
33 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
46 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
51 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 ...
0
votes
0answers
18 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 ...
1
vote
0answers
41 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 ...
1
vote
0answers
34 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
70 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
55 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
155 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
143 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 ...
0
votes
0answers
45 views

Parameter estimation and calibration

I am not sure if I understand calibration correctly. Consider a CIR model, suppose I want to estimate the parameters $a,b,\sigma$, I can use a method such as this. However I understand that ...
0
votes
0answers
75 views

Fitting to Market Data in Extended Vasicek / Hull White

I need your help for my task. I need to calibrate to the market data for Hull White model for Zero Coupon Bond Price. I refer to John Hull and Alan White paper. I want to ask you a few questions and ...
1
vote
0answers
49 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
187 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)...
2
votes
1answer
256 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 ...
1
vote
0answers
58 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
356 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
0answers
68 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
379 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
175 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
127 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 ...
9
votes
0answers
376 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
95 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
361 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
160 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
128 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
55 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
0answers
91 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
590 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
829 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
votes
0answers
88 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 ...
4
votes
1answer
340 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
vote
0answers
31 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 ...
3
votes
1answer
548 views

Proof behind solution for theta in Hull-White with time-dependent volatility and mean reversion?

I'm studying the following paper on Hull-White model calibration: Hull-White paper In this paper they study the general form of the HW model with time-dependent mean reversion and volatility: $$dr(t) ...
5
votes
0answers
237 views

Dupire's calibration

I'm trying to implement a method for calibrating the local volatility model (Dupire's one). I'm working on the paper from Andreasen and Huge : Volatility interpolation (SSRN). Is this considered to be ...
1
vote
0answers
88 views

Calibrating Heston paremeters based on market data for Implied Vol for Call options

Several questions have been asked in here regarding calibration in Heston yet I have not found what I have been looking for, so I will ask: I am looking at a Heston model: $$dS_t=\lambda \sqrt{v_t}...
1
vote
1answer
822 views

Details of calibration of Hull-White model

Consider the one-factor Hull-White model $$ \mathrm{d}r(t) = (\theta(t)-\kappa r(t))\mathrm{d}t + \sigma\mathrm{d}W(t) $$ When one calibrates the model to market data one chooses $$ \theta(t) = \...
17
votes
0answers
701 views

Local Stochastic Volatility - Break even levels

In Chapter 12 of his excellent book Stochastic Volatility Modeling, Lorenzo Bergomi discusses the topic of local-stochastic volatility models (LSV). As most of you are probably aware of, the idea is ...
4
votes
1answer
1k views

How to get set the theta function in the Hull-White model to replicate the current yield curve

I want to calibrate the HW one factor model to current market data. How do I set the function $\theta(t)$ in $$ \mathrm{d}r(t) = \kappa(\theta(t)-r(t))\mathrm{d}t+\sigma\mathrm{d}W(t) $$ to ...
3
votes
0answers
147 views

volatility term structure calibration

As is well known in order to calibrate an interest rate model (i.e. hull-white, LMM) i need to use the current market yield curve and volatility. But in the case I want to calibrate the model in a ...
3
votes
0answers
328 views

Ill-posed problem: Local volatility calibration. Regularization vs Smoothing

I have asked my question on Mathematics site of Stack Exchange but maybe I will get the answer rather here. I am working on inverse problem - calibration of local volatility (financial application). ...
9
votes
1answer
282 views

Heston model reparametrisation

It is well-known that calibrating Heston to the vanilla market is not as easy as it seems: some parameters are "interdependent" and the objective function exhibit plateaus in the parameter space (at ...
2
votes
0answers
197 views

Calibration of real-world drift for PFE

It is well-known that for the calculation of potential future exposure (PFE), real-word probability measure should be used to scenario-generation and risk-neutral measure is used for revaluation; see ...
2
votes
1answer
519 views

Calibration by monte carlo, should I fix my seed?

I am calibrating a 3-parameter stochastic model to options market data via Monte Carlo simulation. Let the parameter set be denoted by $\bar{\theta}$. (this is not a simple Black-Scholes type model, ...
5
votes
2answers
1k views

Fixing mean reversion parameter in the 1F HW model

I am trying to calibrate the 1 factor Hull White model to ATM swaptions. The strategy which I use is to minimise the sum of squared difference between model and market prices for the swaptions on the ...
1
vote
0answers
582 views

Heston Model Calibration

I've calibrated the Heston Model using options data and I was wondering if the parameters I've obtained are stable enough. Also, is Feller condition imposed, when calibrating the Heston Model, in the ...
2
votes
1answer
561 views

Why Hull White 2 Factor model can't capture vol skew?

Is there a way to stay with the short rate model (like HW2F or G2++) but extend it to capture vol term structure (vol smile or skew). What happens if I calibrate HW2F to OTM swaptions? (I don't want ...
5
votes
1answer
2k views

Vasicek model calibration

I am trying to calibrate Vasicek model, i.e. to determine the parameters $\kappa, \mu, \bar{\mu}$ and $\sigma$ where the process dynamics are given through $$ dr_t=\kappa\left( \mu - r_t\right) dt+\...