In this episode of Quantcast, Mauro Cesa and Nazneen Sherif talk with Giorgia Callegaro, Lucio Fiorin and Martino Grasselli, authors of a new paper, American quantized calibration in stochastic volatility.
They introduce a pricing model for European and American-style options with stochastic volatility, applying so-called quantization, a discretisation technique that allows a dimension reduction in the calibration problem.
The technique, borrowed from signal processing analysis, is relatively new to finance, but it is likely to become more widely used. The authors also explain what other computationally demanding problems can be approached with discretisation methods.
What you will find in this podcast:
00:45 An overview of the paper
03:32 What is quantization?
05:25 Potential applications and Google options experiment
08:00 A long-term project
12:06 From the academia to the bank
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