Calibration of the Heston Stochastic Local Volatility Model: A Finite Volume Scheme

2011 ◽  
Author(s):  
Bernd Engelmann ◽  
Frank Koster ◽  
Daniel Oeltz
Keyword(s):  
Finite Volume ◽  
Finite Volume Scheme ◽  
Local Volatility ◽  
Volume Scheme ◽  
Local Volatility Model ◽  
Volatility Model ◽  
Stochastic Local Volatility

Calibration of the Heston stochastic local volatility model: A finite volume scheme

2021 ◽  
pp. 2050048
Author(s):  
Bernd Engelmann ◽  
Frank Koster ◽  
Daniel Oeltz
Keyword(s):  
Finite Volume ◽  
Numerical Test ◽  
Transition Density ◽  
Heston Model ◽  
Finite Volume Scheme ◽  
Local Volatility ◽  
Volume Scheme ◽  
Local Volatility Model ◽  
Volatility Model ◽  
Stochastic Local Volatility

The two most popular equity and FX derivatives pricing models in banking practice are the local volatility model and the Heston model. While the former has the appealing property that it can be calibrated exactly to any given set of arbitrage free European vanilla option prices, the latter delivers more realistic smile dynamics. In this paper, we combine both modeling approaches to the Heston stochastic local volatility model. We build upon a theoretical framework that has been already developed and focus on the numerical model calibration which requires special care in the treatment of mixed derivatives and in cases where the Feller condition is not met in the Heston model leading to a singular transition density at zero volatility. We propose a finite volume scheme to calibrate the model after a suitable transformation of the model equation and demonstrate its accuracy in numerical test cases using real market data.

A new calibration of the Heston Stochastic Local Volatility Model and its parallel implementation on GPUs

2020 ◽  
Vol 177 ◽  
pp. 467-486
Author(s):  
Ana María Ferreiro-Ferreiro ◽  
José A. García-Rodríguez ◽  
Luis Souto ◽  
Carlos Vázquez
Keyword(s):  
Parallel Implementation ◽  
Local Volatility ◽  
Local Volatility Model ◽  
Volatility Model ◽  
Stochastic Local Volatility
Sign in / Sign up

Export Citation Format

Share Document