Calibration Design of Implied Volatility Surfaces

The calibration of option pricing models leads to the minimization of an error functional. We show that its usual specification as a root mean squared error implies fluctuating exotics prices and possibly wrong prices. We propose a simple and natural method to overcome these problems, illustrate drawbacks of the usual approach and show advantages of our method. To this end, we calibrate the Heston model to a time series of DAX implied volatility surfaces and then price cliquet options

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Year of publication:	2017
Authors:	Detlefsen, Kai
Other Persons:	Härdle, Wolfgang (contributor)
Publisher:	[2017]: [S.l.] : SSRN
Subject:	Volatilität \| Volatility \| Optionspreistheorie \| Option pricing theory \| Nichtparametrisches Verfahren \| Nonparametric statistics \| Optionsgeschäft \| Option trading \| Black-Scholes-Modell \| Black-Scholes model

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