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SWIFT calibration of the Heston model

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  • Eudald Romo
  • Luis Ortiz-Gracia

Abstract

In the present work, the European option pricing SWIFT method is extended for Heston model calibration. The computation of the option price gradient is simplified thanks to the knowledge of the characteristic function in closed form. The proposed calibration machinery appears to be extremely fast, in particular for a single expiry and multiples strikes, outperforming the state-of-the-art method we compare with. Further, the a priori knowledge of SWIFT parameters makes possible a reliable and practical implementation of the presented calibration method. A wide set of stress, speed and convergence numerical experiments is carried out, with deep in-the-money, at-the-money and deep out-of-the-money options for very short and very long maturities.

Suggested Citation

  • Eudald Romo & Luis Ortiz-Gracia, 2021. "SWIFT calibration of the Heston model," Papers 2103.01570, arXiv.org.
    • Handle: RePEc:arx:papers:2103.01570
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    References listed on IDEAS

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