A new technique for calibrating stochastic volatility models: the Malliavin gradient method

Christian-Oliver Ewald and Aihua Zhang

Quantitative Finance, 2006, vol. 6, issue 2, 147-158

Abstract: We discuss the application of gradient methods to calibrate mean reverting stochastic volatility models. For this we use formulas based on Girsanov transformations as well as a modification of the Bismut-Elworthy formula to compute the derivatives of certain option prices with respect to the parameters of the model by applying Monte Carlo methods. The article presents an extension of the ideas to apply Malliavin calculus methods in the computation of Greek's.

Keywords: Malliavin calculus; Monte Carlo simulation; Stochastic volatility models; Calibration; Gradient methods; Value at risk (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (6)

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DOI: 10.1080/14697680500531676

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