Bugs item #2104135, was opened at 2008-09-10 18:01
Message generated for change (Comment added) made by klausspanderen
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Category: None
Group: None
Status: Open
Resolution: None
Priority: 5
Private: No
Submitted By: Nobody/Anonymous (nobody)
Assigned to: Nobody/Anonymous (nobody)
Summary: HybridHestonHullWhiteProcess -> negative prices for a Call
Initial Comment:
I am getting negative prices for a call option (among other calibration problems) in the following example code. (Almost entirely based on test-suite code.)
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Comment By: Klaus Spanderen (klausspanderen)
Date: 2008-09-13 12:27
Message:
Hi
The example is using control variate to reduce the statistical error. But
this method can also lead to small negative option NPV for deep OTM options
(as happen in your example). Therefore these options are ignored during the
calibration.
A few other thinks
- in line 751 a constant vol of 12% is added to initialize the calibration
helper. IMO that's a bug because the calibration helper does not match to
the impliedVols array.
- you are using only a few instruments to calibrate the Hull-WHite model.
The \sigma is IMO unrealistically high. Look e.g. into the BermudanSwaption
example to get more realistic values.
- the targetQualityIndex of the test case is much too small for real world
problems. For real problems it is better to monitor the improvements of the
qualityIndex and exit if no further progress is made. (E.g. for your
example I'm getting a qualityIndex of around 100.)
- The algorithm is based on Monte-Carlo optimization and therefore by far
not as stable as a normal Heston calibration. That the reason why I've
removed the example a month ago.
best regards
Klaus
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