http://quantlib.414.s1.nabble.com/Quant-advice-for-a-newbie-trying-to-learn-Heston-model-calibration-via-QuantLib-tp14662.html
Hi Everyone,
Thanks for being on this mailing-list and supporting users like me and to better the community. QuantLib has really helped me in not only having a useful library but also helped me understand some of the models in the library via the code; I'm not as strong as some of you in "groking" the formal steps of say, Heston, Black-Scholes in mathematical notations step-by-step but with the help of QuantLib's source, it has helped me in following along the derivation and the logic.
I have a question about the Heston model calibration in QuantLib, AFAIK, to calibrate a option pricing model,
1) Use the QuantLib::CalibrateModel::calibrate method on the model of your choice (e.g., Heston)
2) Pass into the calibrate method a collection of CalibrationHelper
Which is essentially a collection of actual option prices with strikes and expiry for the chosen optimization algorithm to search and converge on. The Heston Model takes in 4 parameters, so the optimizer would presumably iterate by varying the initial parameters based on the derived pricing compared to actual pricing until they converges close enough.
3) Choose the desired optimization algorithm steps, and acceptable constraint/error range.
However, what I *don't* understand is why the calibration helper's maturity argument's time resolution is only up to day and not minute or hourly bars.
e.g.,
HestonModelHelper(const Period &maturity...) where Period has a TimeUnit type which is a enum of {Days, Weeks, Months, Years}. Now, under regular BSM model and option prices in general, option pricing is sensitive to time resolution of expiration down to minutes especially on the day of expiration due to increasing theta decay.
So I'm not understanding why the CalibrationHelper class constructor only takes in the Day resolution to calculate the theoretical option price. Perhaps I'm missing something, I understand that Heston model models only the volatility; so perhaps the pricing calculation based off it still require the other parameters. But unfortunately, I'm unable to figure it out via the sample code or the QuantLib references,
If anyone can pinpoint me to my misunderstandings and how calibration really works, I'd greatly appreciated; thanks again for everyone's help and support,
Best,
Paul Cao
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