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Feller Constraint for Heston calibration

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Lapin

Feller Constraint for Heston calibration

Hi,

I have discussed with Klaus Spedersen some issues for Heston related to the Feller condition. In summary, the volatility process could reach negative level if this condition is not verified.
To avoid this I have implemented a small constraint class that checks this condition.

Heston_Calibration_constraint.hpp

You can use this file to include it into QL if you wish.

Cheers

Klaus Spanderen-2

Re: Feller Constraint for Heston calibration

Hi

often the Feller condition is not satisfied in real problems (especially for
equity and fx). In general this doesn't matter. And even if the condition is
fulfilled a plain vanilla Euler scheme will produce negative variance.

cheers
Klaus

On Monday 18 February 2008 14:29:08 Yomi wrote:

> Hi,
>
> I have discussed with Klaus Spedersen some issues for Heston related to the
> Feller condition. In summary, the volatility process could reach negative
> level if this condition is not verified.
> To avoid this I have implemented a small constraint class that checks this
> condition.
>
> http://www.nabble.com/file/p15545372/Heston_Calibration_constraint.hpp
> Heston_Calibration_constraint.hpp
>
> You can use this file to include it into QL if you wish.
>
> Cheers

--
Klaus Spanderen
Ludwig Erhard Str. 12
48734 Reken (Germany)
EMail: [hidden email] (remove NOSPAM from the address)

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Luigi Ballabio

Re: Feller Constraint for Heston calibration

On Feb 18, 2008, at 9:24 PM, Klaus Spanderen wrote:
> often the Feller condition is not satisfied in real problems
> (especially for
> equity and fx). In general this doesn't matter. And even if the
> condition is
> fulfilled a plain vanilla Euler scheme will produce negative variance.

So Klaus, if I understand correctly, you advise against putting the
constraint in?

Luigi

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Klaus Spanderen-2

Re: Feller Constraint for Heston calibration

Hi,

the Feller constraint is already in QuantLib .. well hidden as an inner class
of the class HestonModel and called HestonModel::VolatilityConstraint (okay,
the name wasn't that clever;-)

IMO the constraint is more of "academic interest". I wouldn't use in real
life.

Klaus

On Friday 22 February 2008 12:41:41 Luigi Ballabio wrote:

> On Feb 18, 2008, at 9:24 PM, Klaus Spanderen wrote:
> > often the Feller condition is not satisfied in real problems
> > (especially for
> > equity and fx). In general this doesn't matter. And even if the
> > condition is
> > fulfilled a plain vanilla Euler scheme will produce negative variance.
>
> So Klaus, if I understand correctly, you advise against putting the
> constraint in?
>
> Luigi
>
>
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Ferdinando M. Ametrano-3

Re: Feller Constraint for Heston calibration

On Fri, Feb 22, 2008 at 9:44 PM, Klaus Spanderen <[hidden email]> wrote:
> the Feller constraint is already in QuantLib .. well hidden as an inner class
> of the class HestonModel and called HestonModel::VolatilityConstraint (okay,
> the name wasn't that clever;-)

why don't you rename it? ;-)

ciao -- Nando

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Klaus Spanderen-2

Re: Feller Constraint for Heston calibration

commit...done;-)

On Monday 25 February 2008 10:56:39 Ferdinando Ametrano wrote:

> On Fri, Feb 22, 2008 at 9:44 PM, Klaus Spanderen <[hidden email]> wrote:
> > the Feller constraint is already in QuantLib .. well hidden as an inner
> > class of the class HestonModel and called
> > HestonModel::VolatilityConstraint (okay, the name wasn't that clever;-)
>
> why don't you rename it? ;-)
>
> ciao -- Nando
>
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