IDEAS home Printed from https://ideas.repec.org/a/kap/revdev/v15y2012i1p57-79.html
   My bibliography  Save this article

Calibration risk: Illustrating the impact of calibration risk under the Heston model

Author

Listed:
  • Florence Guillaume
  • Wim Schoutens

Abstract

No abstract is available for this item.

Suggested Citation

  • Florence Guillaume & Wim Schoutens, 2012. "Calibration risk: Illustrating the impact of calibration risk under the Heston model," Review of Derivatives Research, Springer, vol. 15(1), pages 57-79, April.
    • Handle: RePEc:kap:revdev:v:15:y:2012:i:1:p:57-79
    DOI: 10.1007/s11147-011-9069-2
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s11147-011-9069-2
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s11147-011-9069-2?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. René M. Stulz, 2004. "Should We Fear Derivatives?," Journal of Economic Perspectives, American Economic Association, vol. 18(3), pages 173-192, Summer.
    2. Heston, Steven L, 1993. "A Closed-Form Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options," The Review of Financial Studies, Society for Financial Studies, vol. 6(2), pages 327-343.
    3. Rama Cont, 2006. "Model Uncertainty And Its Impact On The Pricing Of Derivative Instruments," Mathematical Finance, Wiley Blackwell, vol. 16(3), pages 519-547, July.
    4. Antonio E. Bernardo & Olivier Ledoit, 2000. "Gain, Loss, and Asset Pricing," Journal of Political Economy, University of Chicago Press, vol. 108(1), pages 144-172, February.
    5. Rama Cont, 2006. "Model uncertainty and its impact on the pricing of derivative instruments," Post-Print halshs-00002695, HAL.
    6. Alexander Cherny & Dilip Madan, 2009. "New Measures for Performance Evaluation," The Review of Financial Studies, Society for Financial Studies, vol. 22(7), pages 2371-2406, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Gonçalo Faria & João Correia-da-Silva, 2014. "A closed-form solution for options with ambiguity about stochastic volatility," Review of Derivatives Research, Springer, vol. 17(2), pages 125-159, July.
    2. Holger Fink & Stefan Mittnik, 2021. "Quanto Pricing beyond Black–Scholes," JRFM, MDPI, vol. 14(3), pages 1-27, March.
    3. Shuaiqiang Liu & Anastasia Borovykh & Lech A. Grzelak & Cornelis W. Oosterlee, 2019. "A neural network-based framework for financial model calibration," Papers 1904.10523, arXiv.org.
    4. Michele Leonardo Bianchi & Svetlozar T. Rachev & Frank J. Fabozzi, 2018. "Calibrating the Italian Smile with Time-Varying Volatility and Heavy-Tailed Models," Computational Economics, Springer;Society for Computational Economics, vol. 51(3), pages 339-378, March.
    5. Mitra, Sovan, 2017. "Efficient option risk measurement with reduced model risk," Insurance: Mathematics and Economics, Elsevier, vol. 72(C), pages 163-174.
    6. Florence Guillaume & Wim Schoutens, 2014. "Heston Model: The Variance Swap Calibration," Journal of Optimization Theory and Applications, Springer, vol. 161(1), pages 76-89, April.
    7. Sayantan Khanra & Sanjay Dhir, 2017. "Creating Value in Small-cap Firms by Mitigating Risks of Market Volatility," Vision, , vol. 21(4), pages 350-355, December.
    8. Baule, Rainer & Shkel, David, 2021. "Model risk and model choice in the case of barrier options and bonus certificates," Journal of Banking & Finance, Elsevier, vol. 133(C).
    9. Maciej Augustyniak & Mathieu Boudreault, 2017. "Mitigating Interest Rate Risk in Variable Annuities: An Analysis of Hedging Effectiveness under Model Risk," North American Actuarial Journal, Taylor & Francis Journals, vol. 21(4), pages 502-525, October.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Patrick Beissner, 2019. "Coherent-Price Systems and Uncertainty-Neutral Valuation," Risks, MDPI, vol. 7(3), pages 1-18, September.
    2. Virmani, Vineet, 2014. "Model Risk in Pricing Path-dependent Derivatives: An Illustration," IIMA Working Papers WP2014-03-22, Indian Institute of Management Ahmedabad, Research and Publication Department.
    3. Detering, Nils & Packham, Natalie, 2018. "Model risk of contingent claims," IRTG 1792 Discussion Papers 2018-036, Humboldt University of Berlin, International Research Training Group 1792 "High Dimensional Nonstationary Time Series".
    4. Yuecai Han & Chunyang Liu, 2018. "Asian Option Pricing under Uncertain Volatility Model," Papers 1808.00656, arXiv.org.
    5. Larry G. Epstein & Shaolin Ji, 2013. "Ambiguous Volatility and Asset Pricing in Continuous Time," The Review of Financial Studies, Society for Financial Studies, vol. 26(7), pages 1740-1786.
    6. Dirk Becherer & Klebert Kentia, 2017. "Hedging under generalized good-deal bounds and model uncertainty," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 86(1), pages 171-214, August.
    7. Paolo Foschi & Andrea Pascucci, 2008. "Path dependent volatility," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 31(1), pages 13-32, May.
    8. Kasper Larsen, 2009. "Continuity Of Utility‐Maximization With Respect To Preferences," Mathematical Finance, Wiley Blackwell, vol. 19(2), pages 237-250, April.
    9. Radu Tunaru, 2015. "Model Risk in Financial Markets:From Financial Engineering to Risk Management," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 9524, September.
    10. Baule, Rainer & Shkel, David, 2021. "Model risk and model choice in the case of barrier options and bonus certificates," Journal of Banking & Finance, Elsevier, vol. 133(C).
    11. Dirk Becherer & Klebert Kentia, 2016. "Hedging under generalized good-deal bounds and model uncertainty," Papers 1607.04488, arXiv.org, revised Apr 2017.
    12. J. Maruhn & E. Sachs, 2009. "Robust static hedging of barrier options in stochastic volatility models," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 70(3), pages 405-433, December.
    13. Yu Feng, 2019. "Theory and Application of Model Risk Quantification," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 3-2019, January-A.
    14. Hiroshi Sasaki, 2015. "Understanding Delta-Hedged Option Returns in Stochastic Volatility Environments," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 22(2), pages 151-184, May.
    15. Coqueret, Guillaume & Tavin, Bertrand, 2016. "An investigation of model risk in a market with jumps and stochastic volatility," European Journal of Operational Research, Elsevier, vol. 253(3), pages 648-658.
    16. Mariano González-Sánchez & Eva M. Ibáñez Jiménez & Ana I. Segovia San Juan, 2022. "Market and model risks: a feasible joint estimate methodology," Risk Management, Palgrave Macmillan, vol. 24(3), pages 187-213, September.
    17. Alexander, Carol & Nogueira, Leonardo M., 2007. "Model-free hedge ratios and scale-invariant models," Journal of Banking & Finance, Elsevier, vol. 31(6), pages 1839-1861, June.
    18. Christophe Boucher & Benjamin Hamidi & Patrick Kouontchou & Bertrand Maillet, 2012. "Une évaluation économique du risque de modèle pour les investisseurs de long terme," Revue économique, Presses de Sciences-Po, vol. 63(3), pages 591-600.
    19. Barrieu, Pauline & Scandolo, Giacomo, 2014. "Assessing financial model risk," LSE Research Online Documents on Economics 60084, London School of Economics and Political Science, LSE Library.
    20. Carol Alexander & José María Sarabia, 2012. "Quantile Uncertainty and Value‐at‐Risk Model Risk," Risk Analysis, John Wiley & Sons, vol. 32(8), pages 1293-1308, August.

    More about this item

    Keywords

    Heston model; Calibration; Model risk; Calibration risk; Exotic options; C63; G17;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:revdev:v:15:y:2012:i:1:p:57-79. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.