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SWIFT Calibration of the Heston Model

Author

Listed:
  • Eudald Romo

    (Trading Department, Xanadu Trading Limited, 08011 Barcelona, Spain)

  • Luis Ortiz-Gracia

    (Department of Econometrics, Statistics and Applied Economics, University of Barcelona, 08034 Barcelona, Spain)

Abstract

In the present work, the SWIFT method for pricing European options is extended to Heston model calibration. The computation of the option price gradient is simplified thanks to the knowledge of the characteristic function in closed form. The proposed calibration machinery appears to be extremely fast, in particular for a single expiry and multiple strikes, outperforming the state-of-the-art method we compare it with. Further, the a priori knowledge of SWIFT parameters makes a reliable and practical implementation of the presented calibration method possible. A wide range of stress, speed and convergence numerical experiments is carried out, with deep in-the-money, at-the-money and deep out-of-the-money options for very short and very long maturities.

Suggested Citation

  • Eudald Romo & Luis Ortiz-Gracia, 2021. "SWIFT Calibration of the Heston Model," Mathematics, MDPI, vol. 9(5), pages 1-20, March.
    • Handle: RePEc:gam:jmathe:v:9:y:2021:i:5:p:529-:d:509701
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    References listed on IDEAS

    as
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