Questions tagged [calibration]
The calibration tag has no usage guidance.
164
questions
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calibration of a local volatility model
Generally speaking, when calibrating a local volatility model a la Dupire to European vanilla calls, should I use the numerically (PDE or Monte Carlo) solved price for the vanilla call in the cost ...
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28 views
calibration of local volatility to
I'm looking to understand the practical details of calibrating local volatility to option prices for a range of different expiries using the Dupire local volatility equation. Would appreciate some ...
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0answers
39 views
MatLab code does not work for Heston model calibration
I am trying to calibrate Heston model on some data and I have the following code. Code is supposed, after it reads the data, to give back 5 parameters. However, I get an empty answer from MatLab. Does ...
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54 views
Heston Model Calibration with MatLab: model prices do not fall in the bid-ask range
I am currently implementing the MatLab code reported below for the calibration of Heston Model. The code seems fine and, by reading the paper where I took the code, I was able to calibrate and price ...
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71 views
Vasicek Model With Jumps
I'm trying to calibrate a mean-reverting, jump diffusion model using the outline provided on page 11 here:
http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.40.3489&rep=rep1&type=pdf
...
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45 views
Calibrate Geometric Brownian Motion of trading volume time series
Let's say I'm modeling the trading volume of a stock price (e.g. Apple Inc.) to follow a Geometric Brownian Motion and I want to estimate the parameters (i.e. drift and volatility) using historical ...
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73 views
Problem with calibraton of jump-diffusion models
Hey I try to calibrate Merton and Kou model by minimizing RMSE between market and model prices. The parameters to estimate are: $\sigma,\lambda,\mu,\delta$ (Merton model) and $\sigma,\lambda,p,\eta_1,\...
1
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1answer
51 views
Calibration when characteristic function is not known
The prices of the call and put options can be quickly calculated using many methods using the form of the characteristic function. But how to calibrate a model when we don't know the characteristic ...
1
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1answer
91 views
Calibration Hull-White
This is more a conceptual question around calibration. My objective is to calibrate a 1-factor Hull White model, and my question relates to calibrating a and sigma (both constants) to swaptions.
Let's ...
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193 views
1 Factor Hull And White Swaption Calibration
I'm trying to calibrate a Hull and White model with constant volatility, mean reversion and theta such that the model can reproduce the initial Term Structure. I'm using this python code adapted from &...
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0answers
75 views
Explicit expression for option prices in SABR?
I am trying to get a grip of the current state of research regarding option pricing in the SABR model.
Am I correct in that, so far, there is no known general formula for the option price in the SABR ...
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73 views
Derivation of $u=e^{\sigma\sqrt{dt}}$ and $d=e^{-\sigma\sqrt{dt}}$
Anyone could provide me a proof of how, starting from $\frac{dS_T}{S_t}\sim \operatorname{N}(\mu dt,\sigma^2 dt)$ with $p:=\frac{e^{rdt}-d}{u-d}$, we can obtain the parameters $u$ and $d$ as from ...
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1answer
158 views
Hull-White Monte Carlo simulation - mean reversion function
Quite new to implementing Hull white model in Monte Carlo simulation, hope to get help for 1. how to get the function $\theta$ in the following formula (the function used to match initial term ...
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0answers
37 views
Carr-madan vs COS method vs other methods
Hey during calibration we have to calculate option prices very fast. The most popular method was developed by Carr-Madan, but COS method also is very popular. The problem is for example with Variance ...
2
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0answers
90 views
Are Levy models useless after the financial crisis of 2008?
I calibrated (by minimizing RMSE) the Black Scholes, VG and CGMY models to data from 2005 (before the crisis) and to data from 2020. The results surprised me. I do not understand why for data from ...
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41 views
Carr and Madan algorithm to avoid arbitrage in oprion prices
Hey in this text (https://arxiv.org/abs/1107.1834) in section 7 is described an algorithm which can delete options which generate an arbitrage. $C_ij$ is call option price with strike $K_i$ and ...
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0answers
43 views
How to prepare data for calibration
I want to calibrate different models by minimizing RMSE. When I use data from Schoutens (2003) everything is OK i.e I get reasonable parameters. The problem appears when I try to calibrate models to ...
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16 views
Call options data from 18 April 2002 (Schoutens 2003)
Hey I would like to calibrate different models to call options prices from 18 April 2002. Schoutens used this data for calibration but unfortunately he write only months (screen). What can i do in ...
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31 views
Regularized model Calibration - Penalty term
Hey I want to calibrate model by minimizing $$\arg \min_{\theta}\frac{1}{n}\sum(\text{market price}-\text{model price}(\theta))^2$$ where $n$ is the number of options. This is ill-posed problem and I ...
1
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1answer
98 views
Heston model on currency
We could have the formula for Heston model for currency as (under the Risk-neutral measure for $r_d$) -
$dS_t = \left( r_d - r_f ...
3
votes
2answers
227 views
Forward skew generated by Local Vol model
I'm digging into the properties of the Local Vol model and I become confused with statements made by authors in papers/textbooks (without explanations) like, "The forward skew in local vol model ...
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0answers
56 views
Two questions about COS method
Hey I have some problem with COS method. Here is the paper of Fang and Oosterlee https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.466.267&rep=rep1&type=pdf
Why in table 1.1 they ...
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39 views
Kou model calibration
Hey I want to calibrate Kou model (with 5 parameters to estimate). I am using the brute and fmin functions in Python. In the Black Scholes model, the calibration took literally a few seconds (only one ...
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51 views
Calibration of the Ho Lee model in Excel only based on historical treasury rates (3 months)
I would like to calibrate the Ho Lee model
$dr_t=Īø_tdt+ĻdW_t$
with
$Īø(t)= F_t(0,t)+Ļ^2$
in Excel based on a time series of 3-month treasury rates and then compare the real time series with that ...
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124 views
Calibration and comparison of the Vasicek model and Ho-Lee model
I would like to calibrate the Hoo-Lee model and the Vasicek model to a historical interest rate series and compare the interest rate development of both models with the historical interest rate series....
1
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1answer
38 views
Calibration data selection - basic rules
Hey I found following rules for selecting data for calibration (source: "Kou Jump Diffusion Model: An Application to the Standard and
Poor 500, Nasdaq 100 and Russell 2000 Index Options" by ...
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1answer
126 views
How to choose the martingale measure in incomplete markets
Hey I know that when market is incomplete, then we have to choose an equivalent martingale measure (I heard about Escher Transform martingale measure, Mean correcting martingale measure, minimal ...
0
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1answer
77 views
How to estimate the risk-free rate when pricing options - calibration
I would like to calibrate my model to the current call option prices (with 17 different maturity times) but I don't know how to choose a risk-free rate in this case.
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61 views
Black Scholes model calibration
the only parameter in the Black Scholes model that needs to be estimated is the volatility. Which approach is correct:
Estimation of volatility from daily log returns
Estimating volatility by ...
0
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0answers
15 views
website for downloading data for model calibrating [duplicate]
I'm looking for a website from which I could download data to calibrate the model to evaluate options. I've heard that quandl is free for non-commercial use, but I've heard of Yahoo finance too. Which ...
1
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1answer
103 views
PnL due to model recalibration and its relationship with hedging error
Consider the case where at t=0, I calibrate my model to the market, but at t=1 my model is no longer able to recover the price in the market, so it needs recalibration. Say I have delta hedged my ...
3
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1answer
83 views
How to calibrate models with unbounded parameter space
I am calibrating the Heston model with sequential quadratic programming algorithm. It turns out that the volatility surfaces I am calibrating to can be fit very well with extreme values of mean ...
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84 views
Bond Options Calibration to market volatility using SABR Model
I'm trying to calibrate bond option implied volatility from SABR model to market volatilities, I tried calibration in python but the smile isn't correctly matching with market volatility?
Any help is ...
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0answers
34 views
Local v/s global calibration for a Bermudan Option (calibrate co-terminals vs entire matrix)
I am quite new to rates modeling and I have a question on the pros and cons of calibrating to larger set of vanilla instruments v/s calibrating to an exotic's 'natural' hedges. For example, I could ...
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44 views
calibration of correlation in vasicek model
how can I calibrate the correlation by numerical integration of the normal bivariate distribution assuming that the standardized asset returns of two firms are described by the single-factor Vasicek ...
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0answers
19 views
Hull & White 1F - What is the appropriate calibration portfolio for Libor indexed structured note?
I'm wondering what is the best swaptions or caps portfolio I could use to calibrate the two parameters of H&W 1F model for a structured note with optionality on Libor underlying.
Let's suppose ...
3
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2answers
552 views
What does it mean to “calibrate vols”
As a beginner, it can sometimes be hard to discern what different terms and phrases mean in QF. I've heard multiple people such as academics and market-makers say things like "calibrate vols" or "...
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175 views
Libor Market Model with SABR Calibration
What is the industry practice in calibrating SABR Libor Market Model? Do you first calibrate the SABR model using market data and then implement the libor market model with the calibrated parameters?
...
3
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1answer
131 views
Heston Monte Carlo or FFT Pricing
I am trying to better understand the Heston model and its implementation. It seems like a lot of people use the FFT method for calculating the call prices during the Heston calibration, but the Monte ...
3
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1answer
323 views
Implied vol and model calibration for an american option on a dividend paying stock - is there a market standard pricing model?
In terms of calibrating a pricing model to observed prices for American options on a dividend paying stock, is there a standard way of doing this in practice?
My initial thought was to use CRR ...
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0answers
25 views
Goodness of Calibration Test
are there some tests which are usually performed in order to ensure that a calibration procedure is sound? That is, say you have a model depending on N parameters and one tries to fit them in order to ...
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0answers
68 views
Calibration of G2++ two factor interest rate model using Kalman filtering
I'm trying to use the Kalman filter to calibrate a G2++ interest rate model in R. I'm reading "Implementing interest rate models: A practical guide" by Park F.C. (2004) where he provides details on ...
1
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1answer
86 views
CEV Model Primer
Could someone please point out to a good primer on CEV model?
I am trying to get a basic grasp of the model: The dynamics, advantages & disadvantages, for which payoff it is usually used (Hybrid ...
2
votes
1answer
148 views
how does stochastic volatility models generate smiles?
When calibrating call price with the BS-model, we achieve some parameters and especielly we achieve $\sigma^*$.
Now, lets say I will price call options using these parameters. Then we achieve, lets ...
2
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0answers
144 views
Stochastic Volatility Models Real World Calibration
I am trying to find some research pertaining to the historical (or real world) calibration of stochastic volatility models.
For example, in applications such as counterparty credit risk (IMM) or ...
2
votes
1answer
386 views
PD calibration using Bayes formula
When calculating ECLs for loans under IFRS 9, one of the requirements is that the PD estimates have to be Point-in-time ($PD_{PIT}$) rather than through-the-cycle ($PD_{TTC}$).The setting is as ...
2
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1answer
382 views
Hull-White calibration volatility as a function of time
I need some help for the parametrization of the volatility parameter in the Hull-White model.
I have the necessary Caplet vols and I calibrated the HW model to match the Caplet and hence the Cap ...
0
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1answer
129 views
Calibrating Heston model parameters using the Active-set method and LevenbergāMarquardt
Background: We're estimating the parameters of the Heston model from current market data of options. This is to be implemented using the active-set method (see section 16.5 here) and the Levenberg-...
2
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1answer
161 views
SABR Calibration
I need to generate the Volatility Surface of call options on S&P500 index, my
dataset contains implied volatilities regarding various expiration dates for various strike prices.
My doubt is, ...
3
votes
1answer
354 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 ...
