Fitting the Smile, Smart Parameters for SABR and Heston
Pierre Gauthier
Daiwa Capital Markets Europe
Pierre-Yves Henri Rivaille
October 30, 2009
Abstract:
In this paper we revisit the problem of calibrating stochastic volatility models. By finding smart initial parameters, we improve robustness of Levenberg-Marquardt. Applying this technique to the SABR and Heston models reduces calibration time by more than 90% compared to global optimization techniques such as Simplex or Differential Evolution.
Number of Pages in PDF File: 13
Keywords: Stochastic volatility, SABR, Heston, Smile volatility, Calibration, Optimization
working papers series
Suggested Citation
Gauthier, Pierre and Rivaille, Pierre-Yves Henri, Fitting the Smile, Smart Parameters for SABR and Heston (October 30, 2009). Available at SSRN: http://ssrn.com/abstract=1496982 or http://dx.doi.org/10.2139/ssrn.1496982
