Calibration and simulation of Heston model

Abstract

We calibrate Heston stochastic volatility model to real market data using several optimization techniques. We compare both global and local optimizers for different weights showing remarkable differences even for data (DAX options) from two consecutive days. We provide a novel calibration procedure that incorporates the usage of approximation formula and outperforms significantly other existing calibration methods.

Keywords

• heston model
• stochastic volatility
• option pricing
• monte carlo simulation
• calibration
• 60h10
• 60h35
• 65k10
• 91g20
• 91g60