A new technique for calibrating stochastic volatility models: the Malliavin gradient method

Ewald, C.-O. and Zhang, A. (2006) A new technique for calibrating stochastic volatility models: the Malliavin gradient method. Quantitative Finance, 6(2), pp. 147-158. (doi:10.1080/14697680500531676)

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Publisher's URL: http://dx.doi.org/10.1080/14697680500531676

Abstract

We discuss the application of gradient methods to calibrate mean reverting stochastic volatility models. For this we use formulas based on Girsanov transformations as well as a modification of the Bismut–Elworthy formula to compute the derivatives of certain option prices with respect to the parameters of the model by applying Monte Carlo methods. The article presents an extension of the ideas to apply Malliavin calculus methods in the computation of Greek's.

Item Type:Articles
Status:Published
Refereed:Yes
Glasgow Author(s) Enlighten ID:Ewald, Professor Christian and Zhang, Dr Aihua
Authors: Ewald, C.-O., and Zhang, A.
Subjects:H Social Sciences > HG Finance
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:Quantitative Finance
ISSN:1469-7688
ISSN (Online):1469-7696
Published Online:18 February 2007

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