Comparative Study Between Local And Global Optimization For Heston Model

Authors

DOI:

https://doi.org/10.23755/rm.v42i0.773

Keywords:

Heston Model, Local calibration, Global calibration.

Abstract

The objective of this study is to estimate the calibration parameters of the Heston stochastic volatility model by the two optimization methods: local and global, then to compare their performances and finally to recommend one of the two methods. To predict the prices of EUR/USD currency options, we use the Heston stochastic volatility model. We will first present the model and the two optimization methods: local and global, then we will estimate the calibration parameters using the two optimization methods with MATLAB software, then compare the two and recommend the most efficient method. Results have shown that the local optimization provides excellent calibration parameters with a reduced computational time compared to the global optimization. Therefore, we can clearly recommend it for the Heston model.

References

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Published

2022-06-30

Issue

Vol. 42 (2022)

Section

Volume 42-2022

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