Calibrate volatilities and equity-linked default intensity making many assumptions

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Description

This is a convenience function for calibrating variance cumulation (the at-the-money volatility of the continuous process) and equity linked default intensity of the form $h(s + (1-s)(S0/S_t)^p)$, using a data.frame of option market data.

Usage

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fit_to_option_market_df(S0 = ragtop::TSLAMarket$S0,
  discount_factor_fcn = spot_to_df_fcn(ragtop::TSLAMarket$risk_free_rates),
  options_df = ragtop::TSLAMarket$options, min_maturity = 1/12,
  min_moneyness = 0.8, max_moneyness = 1.2, base_default_intensity = 0.05)

Arguments

S0

Current underlying price

discount_factor_fcn

A function for computing present values to time t of various cashflows occurring during this timestep, with arguments T, t

options_df

A data frame of American option details. It should have columns callput, K, time, mid, bid, and ask,

min_maturity

Minimum option maturity to allow in calibration

min_moneyness

Maximum option strike as a proportion of S0 to allow in calibration

max_moneyness

Maximum option strike as a proportion of S0 to allow in calibration

base_default_intensity

Overall default intensity (in natural units)

See Also

fit_to_option_market the underlying fit algorithm

Other Equity Dependent Default Intensity: find_present_value, fit_variance_cumulation, form_present_value_grid, implied_jump_process_volatility

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