Fourier Integration and Stochastic Volatility Calibration
23 Pages Posted: 4 Dec 2013 Last revised: 27 Feb 2014
Date Written: February 27, 2014
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
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