L3
Heston Calibration via Carr-Madan FFT
Quant Researcher · Numerical Implementation
Question
Calibrate the Heston model to a grid of market implied vols using Levenberg-Marquardt minimisation. Use the Heston characteristic function and Carr-Madan FFT pricing for speed. What objective function do you minimise — MSE in vol space or price space — and why? How do you constrain the Feller condition during optimisation?