Resource title

Calibration design of implied volatility surfaces

Resource image

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Resource description

The calibration of option pricing models leads to the minimization of an error functional. We show that its usual specification as a root mean squared error implies fluctuating exotics prices and possibly wrong prices. We propose a simple and natural method to overcome these problems, illustrate drawbacks of the usual approach and show advantages of our method. To this end, we calibrate the Heston model to a time series of DAX implied volatility surfaces and then price cliquet options.

Resource author

Kai Detlefsen, Wolfgang Karl Härdle

Resource publisher

Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/25085

Resource license

Adapt according to the presented license agreement and reference the original author.