Fitting the Smile, Smart Parameters for SABR and Heston

13 Pages Posted: 31 Oct 2009  

Pierre Gauthier

Daiwa Capital Markets Europe

Pierre-Yves Henri Rivaille

Date Written: 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.

Keywords: Stochastic volatility, SABR, Heston, Smile volatility, Calibration, Optimization

Suggested Citation

Gauthier, Pierre and Rivaille, Pierre-Yves Henri, Fitting the Smile, Smart Parameters for SABR and Heston (October 30, 2009). Available at SSRN: https://ssrn.com/abstract=1496982 or http://dx.doi.org/10.2139/ssrn.1496982

Pierre Gauthier

Daiwa Capital Markets Europe ( email )

5 King William Street
London, EC4N 7DA
United Kingdom

No contact information is available for Pierre-Yves Henri Rivaille

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