Questions tagged [calibration]
The calibration tag has no usage guidance.
151
questions
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14 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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0answers
22 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 ...
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0answers
50 views
Model calibration unrealistic values [closed]
I want to calibrate Kou and Merton model but value which I get are unrealistic. For example in Kou model I get $\sigma=0$ or $p=1$ so there is no diffusion part or only positive jump. Which bounds ...
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0answers
40 views
How to calibrate model in Python
Hey I want to calibrate my model in Python. So far I use fmin function but I would like to add bounds for every variable (because sometimes I get unrealistic value ...
1
vote
1answer
76 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
123 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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votes
0answers
45 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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0answers
25 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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votes
0answers
38 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 ...
0
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0answers
44 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....
0
votes
1answer
29 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 ...
5
votes
1answer
104 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
votes
1answer
69 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.
0
votes
0answers
40 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
votes
0answers
13 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
vote
1answer
80 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
votes
1answer
68 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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votes
0answers
67 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 ...
2
votes
0answers
26 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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0answers
37 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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vote
0answers
15 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
votes
2answers
423 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 "...
4
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0answers
74 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?
...
1
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1answer
63 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
votes
1answer
116 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
20 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
62 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
vote
1answer
64 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
121 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
votes
0answers
116 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
0answers
205 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
votes
1answer
271 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
votes
1answer
99 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
votes
1answer
139 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
253 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
1answer
146 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 ...
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0answers
67 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
481 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
59 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 ...
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0answers
36 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
...
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0answers
49 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 ...
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vote
0answers
61 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
168 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
106 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
239 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
271 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 ...
1
vote
0answers
97 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
356 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)...
3
votes
1answer
387 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 ...
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vote
0answers
71 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 ...
