Fourier Integration and Stochastic Volatility Calibration

23 Pages Posted: 4 Dec 2013 Last revised: 27 Feb 2014

Fabien Le Floc'h

Calypso Technology; Independent

Date Written: February 27, 2014

Abstract

We look at recent algorithms to compute Vanilla option prices under the stochastic volatility models with a known characteristic function, focusing on Heston, Bates, Double-Heston, Schobel-Zhu and study how they behave in the calibration of a real-world implied volatility surface example. We consider local minimization based on Levenberg-Marquardt and a smart initial guess, as well global minimization based on differential evolution.

Keywords: Heston, Bates, Schobel-Zhu, Double Heston, COS method

Suggested Citation

Le Floc'h, Fabien, Fourier Integration and Stochastic Volatility Calibration (February 27, 2014). Available at SSRN: https://ssrn.com/abstract=2362968 or http://dx.doi.org/10.2139/ssrn.2362968

Fabien Le Floc'h (Contact Author)

Calypso Technology ( email )

106 rue de la Boetie
Paris, 75008
France

Independent ( email )

France

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