Accelerating the calibration of stochastic volatility models
AbstractThis paper compares the performance of three methods for pricing vanilla options in models with known characteristic function: (1) Direct integration, (2) Fast Fourier Transform (FFT), (3) Fractional FFT. The most important application of this comparison is the choice of the fastest method for the calibration of stochastic volatility models, e.g. Heston, Bates, Barndor®-Nielsen-Shephard models or Levy models with stochastic time. We show that using additional cache technique makes the calibration with the direct integration method at least seven times faster than the calibration with the fractional FFT method.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 2975.
Date of creation: 31 Dec 2006
Date of revision: 22 Apr 2007
Stochastic Volatility Models; Calibration; Numerical Integration; Fast Fourier Transform;
Find related papers by JEL classification:
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-05-12 (All new papers)
- NEP-CFN-2007-05-12 (Corporate Finance)
- NEP-ETS-2007-05-12 (Econometric Time Series)
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