Miniworkshop: Practitioner's Day
Time: Mon, September 08, 2008, 11:00-11:45
Speaker: Alberto Elices Vallejo
Abstract
This work presents a methodology to introduce time-dependent parameters for a wide family of models preserving their analytic tractability. This family includes hybrid models with stochastic volatility, stochastic interest-rates jumps and their non-hybrid counterparts. The methodology is applied to Heston's model. A bootstrapping algorithm is presented for calibration. A case study works out the calibration of the time-dependent parameters to the volatility surface of the Stoxx50E index. The methodology is also applied to the analytic valuation of forward start vanilla options driven by Heston's model. This result is used to explore the forward skew of the case study.
Structure of presentation:
1. Description of a general methodology to introduce time-dependent parameters preserving analytic tractability for a wide family of models, including hybrids with stochastic volatility, stochastic interest rates and jumps.
2. Application of this methodology to Heston's model.
3. Calibration of Heston's model to the EUROSTOXX 50 index. Two different calibrations of the same set of vanilla prices are obtained and discussed.
4. Application of the method to price Heston's forward start vanilla options.
5. Study and comparison of the forward skew obtained from both previously discussed calibrations.
Presentation slides (pdf, 188 KB)
URL: www.ricam.oeaw.ac.at/specsem/sef/events/program/presentation.php
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