Accelerating the calibration of stochastic volatility models
This 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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| Date of creation: | 31 Dec 2006 |
| Date of revision: | 22 Apr 2007 |
| Handle: | RePEc:pra:mprapa:2975 |
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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Roger Lord & Remmert Koekkoek & Dick Van Dijk, 2010.
"A comparison of biased simulation schemes for stochastic volatility models,"
Quantitative Finance,
Taylor & Francis Journals, vol. 10(2), pages 177-194.
- Roger Lord & Remmert Koekkoek & Dick van Dijk, 2006. "A Comparison of Biased Simulation Schemes for Stochastic Volatility Models," Tinbergen Institute Discussion Papers 06-046/4, Tinbergen Institute, revised 07 Jun 2007.
- Roger Lord & Christian Kahl, 2006. "Optimal Fourier Inversion in Semi-analytical Option Pricing," Tinbergen Institute Discussion Papers 06-066/2, Tinbergen Institute, revised 05 Jun 2007.
- Heston, Steven L, 1993. "A Closed-Form Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options," Review of Financial Studies, Society for Financial Studies, vol. 6(2), pages 327-343.
- Roger Lord & Christian Kahl, 2006. "Why the Rotation Count Algorithm works," Tinbergen Institute Discussion Papers 06-065/2, Tinbergen Institute. Full references (including those not matched with items on IDEAS)