Print Email Facebook Twitter The Heston model with Term Structure Title The Heston model with Term Structure: Option Pricing and Calibration Author van der Zwaard, T. Contributor Oosterlee, C.W. (mentor) du Toit, J. (mentor) Faculty Electrical Engineering, Mathematics and Computer Science Department Delft Institute of Applied Mathematics Programme Numerical Analysis Date 2016-08-19 Abstract This thesis addresses the calibration of the Heston model with term structure (i.e. with piecewise constant parameters) to a set of European option prices from the FX market. Several option pricing methods are discussed and compared, among which the COS method, Lewis' method and the Andersen QE Monte Carlo scheme. Several modifications are proposed in order to improve the practical usability of the COS method in terms of speed, accuracy and robustness. The calibration of the Heston model with term structure is chosen as a benchmarking test-case for comparing several optimization techniques, that are both open-source as well as from licensed products. The performance the optimizers is measured in terms of speed of the calibration. In addition, a simple hedge test using the calibrated model is used as a secondary performance metric. The combined effort of finding the fastest optimization techniques and fastest pricing method has the potential of speeding up daily FX calibrations performed in many financial institutions. Subject option pricingforeign exchange (FX) marketCOS methodHeston model with term structurecalibrationoptimizationbenchmarkinghedging To reference this document use: http://resolver.tudelft.nl/uuid:eb4a8dd4-e024-48d7-9784-4bbecbebe1f1 Embargo date 2021-08-19 Part of collection Student theses Document type master thesis Rights (c) 2016 van der Zwaard, T.