• C++ Programming for Financial Engineering
    Highly recommended by thousands of MFE students. Covers essential C++ topics with applications to financial engineering. Learn more Join!
    Python for Finance with Intro to Data Science
    Gain practical understanding of Python to read, understand, and write professional Python code for your first day on the job. Learn more Join!
    An Intuition-Based Options Primer for FE
    Ideal for entry level positions interviews and graduate studies, specializing in options trading arbitrage and options valuation models. Learn more Join!

SABR and Heston Model

dacronje

dacronje

Joined
4/1/14
Messages
5
Points
11
Hello All,

I am try to construct the volatility surfaces for both the SABR and Heston Models in Matlab. I was just wondering what market information one requires to construct volatility surfaces for both of these models.

i.e. future prices and at the money volatilities for the SABR model (do I need anything else)

Thank you for any help
 
I have read quite a few articles on constructing the volatility surface such as this one. And many other. Not 100% on how the calculate the beta parameter using the log-log plot. Do I do a regression on the data in the plot to calculate the gradient and from there calculate the beta value (gradient=-(1-beta)) ?

Once again any help will be appreciated.
Thank you
 
Although a lot of the literature suggests running regressions to find beta, these regressions are often unstable and can lead to betas outside of [0,1]. Practitioners normally fix beta to 1/2 or 1 and calibrate the other parameters. The other option is to make it a calibrated parameter and use more points on the smile to minimize squared error against.
 
Back
Top