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Questions tagged [calibration]

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0
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1answer
50 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 ...
2
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2answers
80 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
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0answers
88 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
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1answer
57 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
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1answer
105 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
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1answer
58 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
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0answers
56 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 ...
0
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0answers
63 views

Hull White 1F Model Calibration Volatiltiy Squeeze

Just wondering if anyone encountered a volatility squeeze during model calibration of GSR / Hull white 1F models? The calibration is an iterative process for the time dependent vol, while the mean ...
0
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0answers
38 views

Calibration of financial models when only pricing PIDE is known

This is a rather general question but I have not found much on it on the internet. Suppose I describe the stock price dynamics under the risk neutral measure by some SDE. Suppose that I don't have any ...
2
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0answers
35 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
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0answers
58 views

G++ calibration and simulation

I am trying to calibrate and run a monte carlo simulation using the Gaussian 2 Factor in Quantlib Python. However, I am getting the error message as follows: ...
1
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0answers
55 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
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1answer
221 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
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1answer
323 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
46 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 ...
2
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0answers
145 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\...
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0answers
46 views

Choice of time increment for Monte-Carlo Simulation with annual simulation grid

I would like to run a Monte-Carlo simulation for annual cashflows up to 20 years. Cashflows are basically given by multiplying a fixed production amount and end of year price per production amount. In ...
1
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0answers
28 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 ...
2
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1answer
201 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
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0answers
188 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
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0answers
72 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
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1answer
493 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) = \...
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0answers
118 views

CIR calibration error (Python)

No joy on Stack Overflow, perhaps more fitting here. I have a script which includes a calibration of the CIR model for short rates, the entire script and dependencies are at: https://github.com/...
0
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0answers
133 views

How to estimate theta in the Ho-Lee model using the yield curve?

I know theta must be estimated piecewise-analytically based on the interpolation scheme of the yield curve. I have to start with theta(0) and calibrate it fitting the Ho-Lee price of the bond to the ...
15
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0answers
454 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 ...
0
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1answer
512 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
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0answers
99 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
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0answers
212 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). ...
6
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1answer
178 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
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0answers
128 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 ...
3
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1answer
355 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
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2answers
559 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
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0answers
426 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
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1answer
257 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 ...
3
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1answer
884 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+\...
1
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0answers
112 views

Multi objective optimization Swaption/Caplets joint Calibration

People suppose that we have a two asset type portfolio optimization (as Intrument Type 1 and 2). In the each portfolio refered by the instrument type there are 2 asset so we have four asset in total. ...
4
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0answers
357 views

Equations for multicurve calibration with OIS discounting

I am trying to calibrate my forecast and discount curves using the multi-curve approach with OIS discounting. To do so, I have a implemented multivariate Newton-Raphson root finder. I am finding a bit ...
2
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1answer
178 views

Practical way to estimate price sensitivity to unexpected earnings (i.e., post-earnings drift)?

Post-earnings announcement drift is a well documented anomaly in financial research. In 2017 May NBER paper, Replicating Anomalies, the authors found that anomalies related to standardized unexpected ...
6
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1answer
194 views

Is a common approach to calibration reasonable?

"Model Calibration" article in Encyclopedia of Quantitative Finance states that . . . a common approach for selecting a pricing measure $\mathbb{Q}$ is to choose, given a set of liquidly ...
2
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1answer
220 views

ATM i.r. Caps - Black vol calibration

I'm provided the forward curve and time 0 prices of ATM Caps. Volatility is 1-factor Gaussian HJM model with specification: $$ \sigma(t, T) = \nu \exp \{ \beta (T − t) \} $$ Now, I need to ...
0
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1answer
129 views

Calibration of Monte Carlo value?

I wish to calibrate the Heston model parameters to a given smile. Trouble is, I have Heston implemented as a Monte Carlo simulation, and not some deterministic pricing function. So, how do we ...
7
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1answer
539 views

Calibrating a two-factor Hull-White model using Neural Networks

So I have the following short-rate model $$dX_t = a_1X_tdt + \sigma_1dW_t$$ $$dY_t = a_2Y_tdt + \sigma_2dB_t$$ $$r_t = X_t + Y_t + f(t)$$ with $X_0 = Y_0 = 0$ where $W$ and $B$ are Brownian motions ...
1
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1answer
103 views

How to prrice a European swaption with floor?

I'm wondering how we can price a european swaption with a floor on the floating leg. Assuming that we use the HW 1 factor model, how we can simultaneously calibrate the swaption ( on swap rate ...
2
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2answers
1k views

pricing using dupire local volatility model

I am reading about Dupire local volatility model and have a rough idea of the derivation. But I can't reconcile the local volatility surface to pricing using geometric brownian motion process. If I'm ...
4
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1answer
272 views

What is a canonical reference on calibrating the Heston Model?

I am trying to calibrate the Heston model (or another stochastic volatility model). I read about maximum likelihood estimates, but there are so many articles as well with other algorithms. Can you ...
2
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0answers
381 views

Complete Algorithm of Calibration with Vasicek Model using Term-Structure Dynamics over Time

As there are so many different sccenarios about Vaicek Calibration but there has not been a clear example with data shown, I am totally Confused about how should I do it. so I am bringing the question ...
0
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0answers
63 views

Confusion about delta input variable for calibrating the Ornstein-Uhlenbeck model

I am trying to calibrate an OU process to interest rate futures data per MLE method here. My data's sampling frequency is 10 mins. I wish to use the speed of mean reversion $\lambda$ to calculate half ...
4
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1answer
175 views

SVI Parametrization: simple example does not work

I'm trying to experiment with the SVI model. I use the following scripts: ...
4
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0answers
237 views

Hull White 2 factors and non Markov interest rates

I am studying the calibration of the 2 factors Hull White model on Brigo and Mercurio's book. They point out that, using cap volatilities, the value of $\rho$ is almost minus one and this means that ...
1
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1answer
767 views

SVI model and Greeks calculation

The option pricing model I am referring to is this one: Arbitrage-free SVI volatility surfaces I calibrated that model by using a set of European options, now I have a set of 5 parameters per ...