Model calibration

[henaffp]

I'm experimenting with the calibration of Heston's model, but would like
to calibrate to bid/ask vol surfaces, with a quadratic penalty outside
the b/a spread. From what I can tell, the CalibrationHelper does not
allow this (it associates 1 Quote to each benchmark instrument). I have
a couple of solutions in mind, and am looking for comments:

- Subclass a BidAskQuote from SimpleQuote, and use that in
CalibrationHelper (my first choice).
- Subclass CalibrationHelper to add Bid/Ask as SimpleQuotes, etc. In
fact, it would be sufficient for CalibrationHelper to accept a list of
Quotes as well as a single Quote.

Thanks in advance

Patrick Hénaff



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[henaffp]

I'm finding an odd behavior in MCVarianceSwapEngine: the realized
variance along each path is computed from the process diffusion method,
and not from the observed variance itself. So, for example, specifying a
BlackScholes process in the MC engine (as in the test suite) yields - by
construction - the same realized variance (\sigma^2 (T-t)) for all
paths.

It seems to me that the Integrand definition in MCVarianceSwapEngine
(lines 317-335) should compute (dS[t]/S[t])^2 along the path, rather
than simply return the diffusion.

Can anyone comment on this? Is this intentional?

Thanks in advance.

Patrick Hénaff



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[Luigi Ballabio]

Patrick,
        sorry I didn't manage to get back on this.  May you file it as a bug on
<https://sourceforge.net/tracker/?group_id=12740&atid=112740> so we
don't lose track of it?

Thanks,
        Luigi


On Thu, 2011-02-03 at 16:27 +0100, P. Henaff wrote:

> I'm finding an odd behavior in MCVarianceSwapEngine: the realized
> variance along each path is computed from the process diffusion method,
> and not from the observed variance itself. So, for example, specifying a
> BlackScholes process in the MC engine (as in the test suite) yields - by
> construction - the same realized variance (\sigma^2 (T-t)) for all
> paths.
>
> It seems to me that the Integrand definition in MCVarianceSwapEngine
> (lines 317-335) should compute (dS[t]/S[t])^2 along the path, rather
> than simply return the diffusion.
>
> Can anyone comment on this? Is this intentional?
>
> Thanks in advance.
>
> Patrick Hénaff
>
>
>
> ------------------------------------------------------------------------------
> Special Offer-- Download ArcSight Logger for FREE (a $49 USD value)!
> Finally, a world-class log management solution at an even better price-free!
> Download using promo code Free_Logger_4_Dev2Dev. Offer expires
> February 28th, so secure your free ArcSight Logger TODAY!
> http://p.sf.net/sfu/arcsight-sfd2d
> _______________________________________________
> QuantLib-dev mailing list
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> https://lists.sourceforge.net/lists/listinfo/quantlib-dev

--

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