Listed Volatility and Variance Derivatives by Yves Hilpisch

Author:Yves Hilpisch
Language: eng
Format: epub
Publisher: Wiley
Published: 2018-09-25T16:00:00+00:00

The function read_select_quotes() reads and selects option quotes for the calibration.

However, the core functions of the calibration script are the following. On the one hand, valuation_function().

On the other hand, error_function().

Function valuation_function() implements a valuation for the array of strikes under consideration and the parameter values provided. Function error_function() calculates either the MSAE or the MSRE – given the array of strikes and the parameter vector p0. Some penalties are also added depending on the single parameter values or their constellation. For details and a number of similar examples, refer to the book Hilpisch (2015, ch. 11).

Then standard functions from the scipy.optimize library (see Hilpisch (2014), ch. 9) are used to implement both a global (i.e. via the brute() function) and a local optimization (i.e. via the fmin() function). This is all wrapped into the function model_calibration().

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