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, Barndorff-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 Frankfurt School of Finance and Management, Centre for Practical Quantitative Finance (CPQF) in its series CPQF Working Paper Series with number 6.
Date of creation: 2007
Date of revision:
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
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- Manfred Gilli & Enrico Schumann, 2010. "Calibrating Option Pricing Models with Heuristics," Working Papers 030, COMISEF.
- F. Gerlich & A. Giese & J. Maruhn & E. Sachs, 2012. "Parameter identification in financial market models with a feasible point SQP algorithm," Computational Optimization and Applications, Springer, vol. 51(3), pages 1137-1161, April.
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