Test Drive the Stochastic Local Volatility Calibrator

SLV Calibrator

The SLV Calibrator is based on the work of Ren, Madan and Qian [Risk, Sept 2007], Lipton [Risk, Feb 2002], Jex, Henderson and Wang [J.P.Morgan, 1999], and the Bloomberg paper "Stochastic Local Volatility" by Tataru & Fisher.

The SLV Calibrator takes any calibrated LV surface that matches vanillas. Then, using a non-linear Fokker-Planck equation, one adds a SV component and for any given set of SV parameters computes a new "leveraged local volatility surface" that still matches the vanillas, while accommodating SV. The SLV Calibrator then applies to this PDE solution a Levenberg-Marquardt optimizer and finds the (time bucketed) SV parameters that yield a maximally flat leveraged local volatility surface. At this point you have the pure LV model (the original LV surface) and the pure SV model (the SV parameters that yield a nearly flat leveraged LV surface). Both models fit the vanillas. The SLV Calibrator then solves for a mixing fraction the mixes the two models together either by a) calibrating to selected exotics, or b) using historical data.

Get your Stochastic Local Volatility Calibrator
test drive rolling:

First Name clear

  

Last Name

  

Email address

  

Phone Number

  

Company Name

  

Job Function

  

Street Address

  

City

 

State, Post Code

 

Country

  

Are you a robot?

 12+2 =  

Questions/needs:

      


SciComp
Grey Line
SciComp Inc., 5806 Mesa Drive, Suite 250, Austin TX 78731, 512-451-1050, www.scicomp.com

© SciFinance is a registered trademark of SciComp Inc. Other company and product names may be trademarks of the respective companies with which they are associated. All rights reserved.