Re: [Quantlib-dev] Bates Engine for American Options

[Klaus S. <kl...@sp...>]

Hi

> 2)  To use the above paper, we'd need to figure out how to turn all of
> these ruminations and thoughts into an analytic model.  In a
> GARCH-direction there was some type of Mean Tracking Tree which is about
> 10-years old and apparently has decent efficiency.  Kilin, in the above,
> uses a Gaussian Quadrature, so something of that nature might be necessary
> to solve this. 

IMO these methods work for european options but for american options one has 
to use Finite Difference methods which are often too slow for model 
calibration. As far as I know, efficient Bates/Heston calibration on american 
option plus discrete dividends is an open topic. 

> 3)  Supposing I'm willing to accept the risk-neutral 
> log-normality of options 1Y+ into the future, which from what I've read is
> not a bad hypothesis, I could probably build some type of Brownian Bridge
> to accelerate the calibration.  This far-future strike series could be used
> (perhaps) like a shrinkage estimator, where if we turn on regularization to
> the maximum, the output is the standard answer.

hmm, european are american style exercise? Which dividend model do you want to 
use?

regards 
 Klaus

-- 
Klaus Spanderen
Ludwig Erhard Str. 12
48734 Reken (Germany)
EMail: klaus@NOSPAMspanderen.de (remove NOSPAM from the address)