The Parameters Estimation of European Option pricing model under Underlying Asset with Stochastic Volatility by Loss Function Method

Subject Areas : Financial engineering

Abdolsadeh Neisy ¹ , Behrouz Maleki ² , Roozbe Rezaeian ³

1 - دانشیار گروه ریاضی، دانشکده علوم ریاضی و رایانه، دانشگاه علامه طباطبایی
2 - کارشناس ارشد ریاضی کاربردی، گرایش مالی، دانشکده علوم ریاضی و رایانه، دانشگاه علامه طباطبایی
3 - کارشناس ارشد ریاضی کاربردی، گرایش مالی، دانشکده علوم ریاضی و رایانه، دانشگاه علامه طباطبایی

Received: 2016-02-22 Accepted : 2016-05-05 Published : 2016-09-22

Keywords: Option Modeling, Implied Volatility Smile, Classic and Double Heston Models, Laguerre-Gauss Quadrature, Parameter Estimation by Loss Function Method,

Abstract :

Calculating the option price in Stochastic Volatility models is one of the most important queries in financial mathematics that several investigations published about it in recent decades. But in most of these investigations, Model Parameters are used in calculating options without calibration and referring to the process of doing this. In this Article, besides introducing and studying Double Heston Model, we want to estimate the parameters of this model with the help of Loss Function. For this, we use Microsoft Corporation put options with similar maturities and different strike prices, and with estimating Implied Volatility of put option price of this company in April 2015, we achieved this matter.