Fast reliable pricing and calibration of the rough Heston model
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| Format: | Preprint |
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2025
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| _version_ | 1866914003744194560 |
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| author | Boyarchenko, Svetlana de Innocentis, Marco Levendorskiĭ, Sergei |
| author_facet | Boyarchenko, Svetlana de Innocentis, Marco Levendorskiĭ, Sergei |
| contents | The paper is an extended and modified version of the preprint S.Boyarchenko and S.Levendorskiĭ ``Correct implied volatility shapes and reliable pricing in the rough Heston model". We combine a modification of the Adams method with the SINH-acceleration method S.Boyarchenko and S.Levendorskii (IJTAF 2019, v.22) of Fourier inversion (iFT) to price vanilla options under the rough Heston model. For moderate or long maturities and strikes near spot, thousands of prices are computed in several milliseconds (ms) in Matlab on a Mac with moderate specs, with relative errors $\lesssim 10^{-4}$. Even for options close to expiry and far-OTM, the pricing takes a few tens or hundreds of ms. We show that, for the calibrated parameters in El Euch and Rosenbaum (Math.Finance 2019, v.29), the model implied vol surface is much flatter and fits the market data poorly; thus the calibration in op.cit. is a case of ``ghost calibration'' (M.Boyarchenko and S.Levendorskiĭ, Quant. Finance 2015, v.15): numerical error and model specification error offset each other, creating an apparently good fit that vanishes when a more accurate pricer is used. We explain how such errors arise in popular iFT implementations that use fixed numerical parameters, yielding spurious smiles/skews, and provide numerical evidence that SINH acceleration is faster and more accurate than competing methods. Robust error control is ensured by a general Conformal Bootstrap principle that we formulate; the principle is applicable to many Fourier-pricing methods. We outline how this principle and our method enable accurate calibration procedures that are hundreds of times faster than approaches commonly used in the industry. Disclaimer: The views expressed herein are those of the authors only. No other representation should be attributed. |
| format | Preprint |
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arxiv_https___arxiv_org_abs_2508_15080 |
| institution | arXiv |
| publishDate | 2025 |
| record_format | arxiv |
| spellingShingle | Fast reliable pricing and calibration of the rough Heston model Boyarchenko, Svetlana de Innocentis, Marco Levendorskiĭ, Sergei Computational Finance 60-08, 60E10, 60G10, 60G22, 65C20, 65D30, 65G20, 91G20, 91G60 The paper is an extended and modified version of the preprint S.Boyarchenko and S.Levendorskiĭ ``Correct implied volatility shapes and reliable pricing in the rough Heston model". We combine a modification of the Adams method with the SINH-acceleration method S.Boyarchenko and S.Levendorskii (IJTAF 2019, v.22) of Fourier inversion (iFT) to price vanilla options under the rough Heston model. For moderate or long maturities and strikes near spot, thousands of prices are computed in several milliseconds (ms) in Matlab on a Mac with moderate specs, with relative errors $\lesssim 10^{-4}$. Even for options close to expiry and far-OTM, the pricing takes a few tens or hundreds of ms. We show that, for the calibrated parameters in El Euch and Rosenbaum (Math.Finance 2019, v.29), the model implied vol surface is much flatter and fits the market data poorly; thus the calibration in op.cit. is a case of ``ghost calibration'' (M.Boyarchenko and S.Levendorskiĭ, Quant. Finance 2015, v.15): numerical error and model specification error offset each other, creating an apparently good fit that vanishes when a more accurate pricer is used. We explain how such errors arise in popular iFT implementations that use fixed numerical parameters, yielding spurious smiles/skews, and provide numerical evidence that SINH acceleration is faster and more accurate than competing methods. Robust error control is ensured by a general Conformal Bootstrap principle that we formulate; the principle is applicable to many Fourier-pricing methods. We outline how this principle and our method enable accurate calibration procedures that are hundreds of times faster than approaches commonly used in the industry. Disclaimer: The views expressed herein are those of the authors only. No other representation should be attributed. |
| title | Fast reliable pricing and calibration of the rough Heston model |
| topic | Computational Finance 60-08, 60E10, 60G10, 60G22, 65C20, 65D30, 65G20, 91G20, 91G60 |
| url | https://arxiv.org/abs/2508.15080 |