Re: AnaliticHestonEngine -- SV or SVJ

Posted by nabbleuser2008 on Aug 26, 2008; 5:24pm
URL: http://quantlib.414.s1.nabble.com/AnaliticHestonEngine-SV-or-SVJ-tp6640p6653.html

Hi Javit,
 
 Thanks much for your reply. I posted the question since, in the HestonCalibrationHelper constructor, the payoff is used as follows:

 boost::shared_ptr<StrikedTypePayoff> payoff(
                          new PlainVanillaPayoff(Option::Call, strikePrice_));

 Are you saying if I get the implied vol of puts it should work because impvol of a call and the put are the same (in theory, not sure if that holds in practice, anyone ? ) with the same strike and maturity due to put call parity ? I'm using americans, so I didn't think I can use this equality assumption.   Or, are you saying it should work for a different reason ?

 Also, I very much like to know your calibration results. Would you be able to share your findings of the calibration, pls ? I really like to know how accurate your model prices are wrt market prices.

 Thank you very much.

C

<quote author="javit">
Dear nabbleuser,

I recently calibrated Bates model by using Quantlib. I see no computational reason why you can't calibrate to put options. I used volatility surface to calibrate the model. It is upto you how to build the volatility surface. Use calls, puts, swaptions etc.

Good luck,
Cavit (Javit) Hafizoglu

nabbleuser2008 wrote

Dear Klaus,
 
  Thanks much for the information. It was really helpful.

  I'm using the same thread to ask a related question, since it is kind of directed at you  ...

  I am wondering why the HestonModelHelper  does not allow puts be used in the calibration -- since Heston pricing engine can price the puts, I felt that only change required is allowing Option::Type be specified as a parameter in the constructor. Do you agree with my thinking ? if not, is there a reason for not using the puts for calibration ?

 I am asking this question because I am experimenting ways to achieve a good calibration, and I'd like to see if I can get a better calibration by using puts. Mainly I'm interested in out of the money puts and calls and I'm trying out ways to improve my model prices.    

 As an additional piece of info, I'm using the american prices as input, but I use the BaroneAdesyWhaley approximation to find the value of the correspoinding european which I use in the calibration.  

I'm planning to use the Bates model next, but I would like to use the puts for the Heston calibration unless it doesn't make sense.
   
Thanks much for your help.

C

Klaus Spanderen-2 wrote

Hi

The Bates model is a Heston model plus a (stochastic) jump processes for the
equity underlying. E. g. Gatheral is discussing the Bates model with
log-normal jump diffusion process at page 65 ff. IMO Bates is used more often  
in real life than the Heston-Nandi model.

regards
 Klaus