Skip to main content
SpringerLink
Log in

Calibrating the Heston Model with Differential Evolution

  • Conference paper
Applications of Evolutionary Computation (EvoApplications 2010)

Part of the book series: Lecture Notes in Computer Science ((LNTCS,volume 6025))

Included in the following conference series:

Abstract

Calibrating option pricing models to market prices often leads to optimisation problems to which standard methods (like such based on gradients) cannot be applied. We investigate one particular example, Heston’s stochastic volatility model. We discuss how to price options under this model, and how to calibrate the parameters of the model with a heuristic technique, Differential Evolution.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution
Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 84.99
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD 109.99
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Heston, S.L.: A Closed-Form Solution for Options with Stochastic Volatility with Applications to Bonds and Currency options. Review of Financial Studies 6(2), 327–343 (1993)

    Article  Google Scholar 

  2. Carr, P., Madan, D.B.: Option Valuation Using the Fast Fourier Transform. Journal of Computational Finance 2(4), 61–73 (1999)

    Google Scholar 

  3. Bakshi, G., Madan, D.B.: Spanning and Derivative-Security Valuation. Journal of Financial Economics 55(2), 205–238 (2000)

    Article  Google Scholar 

  4. Schoutens, W.: Lévy Processes in Finance: Pricing Financial Derivatives. Wiley, Chichester (2003)

    Google Scholar 

  5. Albrecher, H., Mayer, P., Schoutens, W., Tistaert, J.: The Little Heston Trap., Wilmott, January 2007, pp. 83–92 (2007)

    Google Scholar 

  6. Davis, P.J., Rabinowitz, P.: Methods of Numerical Integration, 2nd edn. Dover, New York (2007)

    MATH  Google Scholar 

  7. Trefethen, L.N.: Is Gauss Quadrature Better than Clenshaw–Curtis? SIAM Review 50(1), 67–87 (2008)

    Article  MATH  MathSciNet  Google Scholar 

  8. Kilin, F.: Accelerating the Calibration of Stochastic Volatility Models. Centre for Practical Quantitative Finance Working Paper Series, vol. 6 (2007)

    Google Scholar 

  9. Storn, R.M., Price, K.V.: Differential Evolution – a Simple and Efficient Heuristic for Global Optimization over Continuous Spaces. Journal of Global Optimization 11(4), 341–359 (1997)

    Article  MATH  MathSciNet  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Department of Econometrics, University of Geneva,  

    Manfred Gilli & Enrico Schumann

Authors
  1. Manfred Gilli
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Enrico Schumann
    View author publications

    You can also search for this author in PubMed Google Scholar

Editor information

Editors and Affiliations

  1. Department of Mathematics and Statistics, University of Strathclyde, 16 Richmond Street, G1 1XQ, Glasgow, UK

    Cecilia Di Chio

  2. School of Business, University College Dublin, Belfield, Dublin 4, UK

    Anthony Brabazon

  3. ’Dalla Molle’ Institute for Artificial Intelligence (IDSIA), Galleria 2, 6928, Manno-Lugano, Switzerland

    Gianni A. Di Caro

  4. Wilhelm Schickard-Institut für Informatik, Universität Tübingen, Sand 1, 72076, Tübingen, Germany

    Marc Ebner

  5. National University of Computer and Emerging Sciences (NUCES), A.K. Brohi Road, H-11/4, Islamabad, Pakistan

    Muddassar Farooq

  6. Fakultät für WiSo, HelmutSchmidt-Universität, Holstenhofweg 85, 22043, Hamburg, Germany

    Andreas Fink

  7. Department of Information Systems, Johannes Gutenberg-Universität, 55099, Mainz, Germany

    Jörn Grahl

  8. Mathematics and Computer Science Depatment, University of Richmond, 23173, Richmond, VA, USA

    Gary Greenfield

  9. Department of Informatics Engineering, Polo II - Pinhal de Marrocos, University of Coimbra, 3030 - 290, Coimbra, Portugal

    Penousal Machado

  10. School of Computer Science and Informatics, University College Dublin, Belfield, Dublin 4, UK

    Michael O’Neill

  11. Istituto di Calcolo e Reti ad Alte Prestazioni (ICAR), Consiglio Nazionale delle Ricerche (CNR), Via P. Castellino 111, 80131, Naples, Italy

    Ernesto Tarantino

  12. School of Computing, Edinburgh Napier University, 10 Clinton Road, EH10 5DT, Edinburgh, UK

    Neil Urquhart

Rights and permissions

Reprints and permissions

Copyright information

© 2010 Springer-Verlag Berlin Heidelberg

About this paper

Cite this paper

Gilli, M., Schumann, E. (2010). Calibrating the Heston Model with Differential Evolution. In: Di Chio, C., et al. Applications of Evolutionary Computation. EvoApplications 2010. Lecture Notes in Computer Science, vol 6025. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-12242-2_25

Download citation

  • DOI: https://doi.org/10.1007/978-3-642-12242-2_25

  • Publisher Name: Springer, Berlin, Heidelberg

  • Print ISBN: 978-3-642-12241-5

  • Online ISBN: 978-3-642-12242-2

  • eBook Packages: Computer ScienceComputer Science (R0)

Publish with us

Policies and ethics

Search

Navigation