TY - JOUR
T1 - Parameter calibration of stochastic volatility Heston's model
T2 - Constrained optimization vs. differential evolution
AU - Ortiz-Ramírez, Ambrosio
AU - Venegas-Martínez, Francisco
AU - Martínez-Palacios, María Teresa Verónica
N1 - Publisher Copyright:
© 2021 Universidad Nacional Autonoma de Mexico. All rights reserved.
PY - 2021
Y1 - 2021
N2 - This paper calibrates through loss functions the parameters of Heston's stochastic volatility model by using two different methods: Minimizing a nonlinear objective function (a loss function) with constraints on the values of the parameter and using a differential evolution algorithm. Both methods are applied to implied volatilities on the Mexican Stock Exchange Index with four maturities and twenty-eight strike prices. The selection criterion for the parameters is minimizing the value of the mean square error of the implied volatility. The first method has a better performance with less error and time. However, empirical results show that for both methods the adjustment of implied volatilities is better for options with long-term maturities than for short-term maturities.
AB - This paper calibrates through loss functions the parameters of Heston's stochastic volatility model by using two different methods: Minimizing a nonlinear objective function (a loss function) with constraints on the values of the parameter and using a differential evolution algorithm. Both methods are applied to implied volatilities on the Mexican Stock Exchange Index with four maturities and twenty-eight strike prices. The selection criterion for the parameters is minimizing the value of the mean square error of the implied volatility. The first method has a better performance with less error and time. However, empirical results show that for both methods the adjustment of implied volatilities is better for options with long-term maturities than for short-term maturities.
KW - Contingent pricing
KW - Differential evolution
KW - Implied volatility
KW - Stochastic volatility
UR - http://www.scopus.com/inward/record.url?scp=85161205139&partnerID=8YFLogxK
U2 - 10.22201/fca.24488410e.2021.2789
DO - 10.22201/fca.24488410e.2021.2789
M3 - Artículo de revisión
AN - SCOPUS:85161205139
SN - 0186-1042
VL - 66
SP - 40
EP - 67
JO - Contaduria y Administracion
JF - Contaduria y Administracion
IS - 4
ER -