Calibrating the heston model with differential evolution

Authors:
Manfred Gilli;Enrico Schumann
Affiliations:
Department of Econometrics, University of Geneva;Department of Econometrics, University of Geneva
Venue:
EvoCOMNET'10 Proceedings of the 2010 international conference on Applications of Evolutionary Computation - Volume Part II
Year:
2010

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Abstract

Calibrating option pricing models to market prices often leads to optimisation problems to which standard methods (like such based on gradients) cannot be applied. We investigate one particular example, Heston's stochastic volatility model. We discuss how to price options under this model, and how to calibrate the parameters of the model with a heuristic technique, Differential Evolution.