We propose a neural network-based approach to calibrating stochastic volatility models, which combines the pioneering grid approach by Horvath et al. (2021) with the pointwise two-stage calibration of Bayer et al. (2018) and Liu et al. (2019). Our methodology inherits robustness from the former while not suffering from the need for interpolation/extrapolation techniques, a clear advantage ensured by the pointwise approach. The crucial point to the entire procedure is the generation of implied volatility surfaces on random grids, which one dispenses to the network in the training phase. We support the validity of our calibration technique with several empirical and Monte Carlo experiments for the rough Bergomi and Heston models under a simple but effective parametrization of the forward variance curve. The approach paves the way for valuable applications in financial engineering- for instance, pricing under local stochastic volatility models- and extensions to the fast-growing field of path-dependent volatility models.

Deep calibration with random grids

Baschetti, Fabio;Bormetti, Giacomo
;
2024

Abstract

We propose a neural network-based approach to calibrating stochastic volatility models, which combines the pioneering grid approach by Horvath et al. (2021) with the pointwise two-stage calibration of Bayer et al. (2018) and Liu et al. (2019). Our methodology inherits robustness from the former while not suffering from the need for interpolation/extrapolation techniques, a clear advantage ensured by the pointwise approach. The crucial point to the entire procedure is the generation of implied volatility surfaces on random grids, which one dispenses to the network in the training phase. We support the validity of our calibration technique with several empirical and Monte Carlo experiments for the rough Bergomi and Heston models under a simple but effective parametrization of the forward variance curve. The approach paves the way for valuable applications in financial engineering- for instance, pricing under local stochastic volatility models- and extensions to the fast-growing field of path-dependent volatility models.
2024
Settore STAT-04/A - Metodi matematici dell'economia e delle scienze attuariali e finanziarie
Neural Network pricing and calibration; Rough volatilty; Forward variance curve
File in questo prodotto:
File Dimensione Formato  
Deep calibration with random grids.pdf

accesso aperto

Tipologia: Published version
Licenza: Solo Lettura
Dimensione 4.02 MB
Formato Adobe PDF
4.02 MB Adobe PDF

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11384/150984
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 0
  • ???jsp.display-item.citation.isi??? 0
  • OpenAlex ND
social impact