Quantifying the Model Risk Inherent in the Calibration and Recalibration of Option Pricing Models

Quantifying the Model Risk Inherent in the Calibration and Recalibration of Option Pricing Models

We focus on two particular aspects of model risk: the inability of a chosen model to fit observed market prices at a given point in time (calibration error) and the model risk due to the recalibration of model parameters (in contradiction to the model assumptions). In this context, we use relative e...

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Bibliographic Details
Main Authors: Yu Feng, Ralph Rudd, Christopher Baker, Qaphela Mashalaba, Melusi Mavuso, Erik Schlögl
Format: Article
Language:English
Published: MDPI AG 2021-01-01
Series:Risks
Subjects:
model risk
option pricing
relative entropy
model calibration
stochastic volatility
Online Access:https://www.mdpi.com/2227-9091/9/1/13

Internet

https://www.mdpi.com/2227-9091/9/1/13

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