Posted by
nabbleuser2008 on
Sep 01, 2008; 3:56pm
URL: http://quantlib.414.s1.nabble.com/AnaliticHestonEngine-SV-or-SVJ-tp6640p6648.html
Dear Klaus,
Thank you very much for your advice kind help. I've tried with both puts and calls with Heston and Bates models (pls see attachment for a bit of the results). I also wanted to try what you're saying below, but I was not able to understand how to do what you were saying
"A step forward for the calibration on american options using the european
Heston engine is to "quote" the volatilities in terms of strike and "average
time 'til' exercise" instead of the maturity of the options. This should
bring call and out vols closer together. "
It would really help if you could show me what you mean by an example or something. ;)
I've used the FDDividendAmericanEngine to calculate the implied volatilities ( Even though I noticed the comment in the source file that impliedVolatility may not be accurate. I still used it as I couldn't find a better alternative in the QL librarary for my needs, as I'm interested in americans with discrete dividend payments.)
When I tried fitting americans to Heston, I found that the model under-values the options. So I tried adding the whaley premium to the model price but I was still not able to get prices close to market range for some/most out of the money options. (pls see the attachment for some sample prices).
Then I tried the Bates model. Based on what I've read, I expected the prices of the jump model to be higher than Heston model prices. It turned out they are higher, but in some cases they seem to be higher than the market prices for out of the money options. (pls see the attachment for some sample prices).
Having seen Gatheral's results, I expected the results of Bates model to be better. However, in my case, it is hard to say which one is better as both models produce some good values and some not so good values.
I really appreciate if you could pls take a look at the numbers, and let me know if you have any comments, suggestions to improve my results. For my current project, I'm interested in matching the model generated prices for out of the money short maturities. I saw bigger deviations in the model prices from the market prices for the next shorter maturity, btw.
Thank you very much.
C
> I'm
> thinking if I use both the put and the call for a given strike and
> maturity, it will be a rather weird type vol surface (with spikes) and it
> might confuse the calibration program ?
hmm.. in practice the Heston calibration is a good averaging algorithm to get
ride of the spikes;-). But remove options that have obviously wrong prices.
cheers
--
Klaus Spanderen
Ludwig Erhard Str. 12
48734 Reken (Germany)
EMail: klaus@NOSPAMspanderen.de (remove NOSPAM from the address)
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