Hi Stephan,
A few shortcomings in my (biased) opinion:
The calibration errors are somethimes really big e.g. for equities on the short end for OTM puts. This can be solved using stochastic local volatility models or to some extend using a Heston model with jumps and/or time dependent parameters.
The volatility dynamics with respect to movements of the underlying is not "natural" (at least IMO for equity markets). See e.g. conclusion in
http://www.icmacentre.ac.uk/files/discussion-papers/dp201005.pdf
Unrealistic square-root variance process with non zero probability at zero variance if the Feller constraint is violated and the Feller constraint is often violated when calibrating to real market data.
But every model has a bunch of shortcomings and I don't want to questioning the model as such. I just don't think that the missing hourly resolution during the calibration is a bigger problem.
regards
Klaus
On Friday, November 15, 2013 10:43:16 PM stephan buschmann wrote:
> Hi Klaus,
> just catching up this thread.
> What is your experience in using the heston model and what are the
> practical shortcomings you saw? Is the model not easy to calibrate or
> what is it?
> Many thanks!
> stephan
>
> > https://lists.sourceforge.net/lists/listinfo/quantlib-users
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