Calibrating Heston for credit risk

Marco de Innocentis and Sergei Levendorskiĭ describe a faster and more accurate method for market-implied calibration of the Heston model


Marco de Innocentis and Sergei Levendorskiĭ describe a new method for market-implied calibration of the Heston model for equity, based on an improved version of the parabolic pricing algorithm. This pricing method, when used in the calibration, is much faster and more accurate, and better reproduces the implied volatilities, than popular alternatives. As such, it is suitable for use in a typical internal model method counterparty risk engine

One of the main reasons

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Credit risk & modelling – Special report 2021

This Risk special report provides an insight on the challenges facing banks in measuring and mitigating credit risk in the current environment, and the strategies they are deploying to adapt to a more stringent regulatory approach.

The wild world of credit models

The Covid-19 pandemic has induced a kind of schizophrenia in loan-loss models. When the pandemic hit, banks overprovisioned for credit losses on the assumption that the economy would head south. But when government stimulus packages put wads of cash in…

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