A new calibration of the Heston Stochastic Local Volatility Model and its parallel implementation on GPUs

Ana María Ferreiro-Ferreiro, José A. García-Rodríguez, Luis Souto and Carlos Vázquez

Mathematics and Computers in Simulation (MATCOM), 2020, vol. 177, issue C, 467-486

Abstract: In this article we propose a new more general calibration of the Heston Stochastic-Local Volatility (HSLV) model. More precisely, the main contribution is to perform the direct calibration of the whole set of parameters at the same time instead of the usual two steps procedure. Moreover, the proposed approach allows to use exotic options to calibrate the HSLV model, thus making it more flexible and general. However, as there are no analytical formulas available to price exotic options to calibrate the model, the cost function (the HSLV pricer) involved in the calibration process must be computed using Monte Carlo methods, thus leading to a highly demanding computational problem. Therefore, we also propose efficient parallel GPU implementations of Monte Carlo techniques for the pricers. Furthermore, for solving the resulting global optimization problem, we develop customized parallel multi-CPU implementations of two of the most common stochastic metaheuristic global optimization algorithms: Differential Evolution and Simulated Annealing. A comparison between both algorithms has been made. This second level of parallelization has been carried out by the implementation of the cost function as a single GPU kernel and keeping the OpenMP parallelization for the optimization algorithm, thus leading to a hybrid multi-GPU implementation of the calibrator. All these implementations have been tested with real market data for European and barrier options in the context of foreign exchange markets.

Keywords: Heston; Stochastic-Local Volatility; Monte Carlo; Calibration; Global optimization; Simulated Annealing; Differential Evolution; Multi-GPU (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:matcom:v:177:y:2020:i:c:p:467-486

DOI: 10.1016/j.matcom.2020.04.001

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