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DX Analytics – Square‐Root Jump Diffusion
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Book Chapter
DX Analytics – Square‐Root Jump Diffusion
2016
Overview
This chapter calibrates the square‐root jump diffusion (SRJD) model to both the VSTOXX futures term structure and for multiple maturities for the VSTOXX options. It uses DX Analytics which provides flexible modeling capabilities for volatility based derivatives based, among other things, on square‐root diffusions and square‐root jump diffusions. The chapter presents calibration results for three different calibration runs. The first run implements a calibration to a single maturity, the second to two maturities simultaneously while the third run does the same for five maturities of the VSTOXX options. The final run shows the effects of not using penalties for deviations from previous optimal parameters which in general would be used to get smoother parameter time series. The highest average mean‐squared error (MSE) value is observed for the calibration case with one maturity only.
Publisher
John Wiley & Sons, Ltd
Subject
ISBN
1119167914, 9781119167914
