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Accelerating the calibration of stochastic volatility models

  • Kilin, Fiodar

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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File URL: http://mpra.ub.uni-muenchen.de/2975/1/MPRA_paper_2975.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 2975.

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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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  1. repec:dgr:uvatin:20060046 is not listed on IDEAS
  2. 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 327-43.
  3. repec:dgr:uvatin:20060065 is not listed on IDEAS
  4. repec:dgr:uvatin:20060066 is not listed on IDEAS
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