Calibration of a Hybrid Local-Stochastic Volatility Stochastic Rates Model with a Control Variate Particle Method

21 Jan 2017  ·  Andrei Cozma, Matthieu Mariapragassam, Christoph Reisinger ·

We propose a novel and generic calibration technique for four-factor foreign-exchange hybrid local-stochastic volatility models with stochastic short rates. We build upon the particle method introduced by Guyon and Labord\`ere [Nonlinear Option Pricing, Chapter 11, Chapman and Hall, 2013] and combine it with new variance reduction techniques in order to accelerate convergence. We use control variates derived from a calibrated pure local volatility model, a two-factor Heston-type LSV model (both with deterministic rates), and the stochastic (CIR) short rates. The method can be applied to a large class of hybrid LSV models and is not restricted to our particular choice of the diffusion. The calibration procedure is performed on real-world market data for the EUR-USD currency pair and has a comparable run-time to the PDE calibration of a two-factor LSV model alone.

PDF Abstract
No code implementations yet. Submit your code now



  Add Datasets introduced or used in this paper

Results from the Paper

  Submit results from this paper to get state-of-the-art GitHub badges and help the community compare results to other papers.


No methods listed for this paper. Add relevant methods here