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Sequential Calibration of Asset Pricing Models to Option Prices
This paper implements four calibration methods on stochastic volatility models. We estimate the latent state and parameters of the models using three non-linear filtering methods, namely the extended Kalman filter (EKF), iterated extended Kalman filter (IEKF) and the unscented Kalman filter (UKF). A...
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| Format: | Thesis |
| Language: | English |
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African Institute of Financial Markets and Risk Management
2019
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| _version_ | 1867613303328473089 |
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| access_status_str | Open Access |
| author | Oagile, Joel |
| author2 | Ouwehand, Peter |
| author_browse | Oagile, Joel Ouwehand, Peter |
| author_facet | Ouwehand, Peter Oagile, Joel |
| author_sort | Oagile, Joel |
| collection | Thesis |
| description | This paper implements four calibration methods on stochastic volatility models. We estimate the latent state and parameters of the models using three non-linear filtering methods, namely the extended Kalman filter (EKF), iterated extended Kalman filter (IEKF) and the unscented Kalman filter (UKF). A simulation study is performed and the non-linear filtering methods are compared to the standard least square method (LSQ). The results show that both methods are capable of tracking the hidden state and time varying parameters with varying success. The non-linear filtering methods are faster and generally perform better on validation. To test the stability of the parameters, we carry out a delta hedging study. This exercise is not only of interest to academics, but also to traders who have to hedge their positions. Our results do not show any significant benefits resulting from performing delta hedging using parameter estimates obtained from non-linear filtering methods as compared to least square parameter estimates. |
| format | Thesis |
| id | oai:open.uct.ac.za:11427/29840 |
| institution | University of Cape Town (South Africa) |
| language | eng |
| last_indexed | 2026-06-10T12:33:59.204Z |
| license_str | Not specified — see source repository |
| provenance_str_mv | Harvested via OAI-PMH from UCTD — University of Cape Town Open Access Repository |
| publishDate | 2019 |
| publishDateRange | 2019 |
| publishDateSort | 2019 |
| publisher | African Institute of Financial Markets and Risk Management |
| publisherStr | African Institute of Financial Markets and Risk Management |
| record_format | dspace |
| source_str | UCTD — University of Cape Town Open Access Repository |
| spelling | oai:open.uct.ac.za:11427/29840 Sequential Calibration of Asset Pricing Models to Option Prices Oagile, Joel Ouwehand, Peter Mathematical Finance This paper implements four calibration methods on stochastic volatility models. We estimate the latent state and parameters of the models using three non-linear filtering methods, namely the extended Kalman filter (EKF), iterated extended Kalman filter (IEKF) and the unscented Kalman filter (UKF). A simulation study is performed and the non-linear filtering methods are compared to the standard least square method (LSQ). The results show that both methods are capable of tracking the hidden state and time varying parameters with varying success. The non-linear filtering methods are faster and generally perform better on validation. To test the stability of the parameters, we carry out a delta hedging study. This exercise is not only of interest to academics, but also to traders who have to hedge their positions. Our results do not show any significant benefits resulting from performing delta hedging using parameter estimates obtained from non-linear filtering methods as compared to least square parameter estimates. 2019-03-01T06:31:05Z 2019-03-01T06:31:05Z 2018 2019-02-25T11:48:19Z Master Thesis Masters MPhil http://hdl.handle.net/11427/29840 eng application/pdf African Institute of Financial Markets and Risk Management Faculty of Commerce University of Cape Town |
| spellingShingle | Mathematical Finance Oagile, Joel Sequential Calibration of Asset Pricing Models to Option Prices |
| thesis_degree_str | Master's |
| title | Sequential Calibration of Asset Pricing Models to Option Prices |
| title_full | Sequential Calibration of Asset Pricing Models to Option Prices |
| title_fullStr | Sequential Calibration of Asset Pricing Models to Option Prices |
| title_full_unstemmed | Sequential Calibration of Asset Pricing Models to Option Prices |
| title_short | Sequential Calibration of Asset Pricing Models to Option Prices |
| title_sort | sequential calibration of asset pricing models to option prices |
| topic | Mathematical Finance |
| url | http://hdl.handle.net/11427/29840 |
| work_keys_str_mv | AT oagilejoel sequentialcalibrationofassetpricingmodelstooptionprices |