NATURAL COMPUTING IN COMPUTATIONAL FINANCE, Anthony Brabazon, Michael O'Neill, Dietmar Maringer, eds., Vol. 4, Springer, 2011
39 Pages Posted: 8 Mar 2010 Last revised: 30 Dec 2013
Date Written: December 27, 2013
Calibrating option pricing models to market prices often leads to optimisation problems to which standard methods (like such based on gradients) cannot be applied. We investigate two models: Heston’s stochastic volatility model, and Bates’s model which also includes jumps. We discuss how to price options under these models, and how to calibrate the parameters of the models with heuristic techniques. Sample Matlab code is provided.
Keywords: Option Pricing, Calibration of Option Pricing Models, Differential Evolution, Particle Swarm Optimisation, Heston Model, Bates Model, Matlab
JEL Classification: C61, C63, G13
Suggested Citation: Suggested Citation
Gilli, Manfred and Schumann, Enrico, Calibrating Option Pricing Models with Heuristics (December 27, 2013). NATURAL COMPUTING IN COMPUTATIONAL FINANCE, Anthony Brabazon, Michael O'Neill, Dietmar Maringer, eds., Vol. 4, Springer, 2011. Available at SSRN: https://ssrn.com/abstract=1566975