About a-team Marketing Services
The knowledge platform for the financial technology industry
The knowledge platform for the financial technology industry

A-Team Insight Blogs

Pricing Partners Implements Simplex Algorithm and Significantly Enhances its Calibration Power

Subscribe to our newsletter

Pricing Partners announced today that Simplex, a new optimisation technique, has been implemented in the Price-it Library to enhance its calibration power. This algorithm allows time dependent Heston Model parameters, accelerates calibration procedure and improves calibration accuracy. With this upgraded numerical method, Pricing Partners enriches Price-it Library and undoubtedly enhances its strong authority on cutting edge model expertise.

A calibration procedure is a necessary step during which market data (usually implied BS volatility) is used as input to determine the parameters of a financial model. The optimum research for those parameters enables the model to fit the best the input market data. However, calibration can be time consuming and depends on the size of the input data, on the number of parameters to calibrate and also on the calibration algorithm itself. Therefore, Pricing Partners tested several methods before picking this Simplex one. Simplex is a powerful method that optimises calibration procedure and effectiveness.

Compared with Levenberg Marquardt, the local and initial value sensitive algorithm, Simplex, a global algorithm, is the only robust and easy method, which is irrelevant to initial input value. On the other hand, a model parameter can be either time dependent or constant. Unlike commonly used calibration methods on the market today, which only provide constant parameters, Simplex produces time dependent parameters. Simplex is suitable for the time dependent Heston Model, a model known for its competitive accuracy and speed. With this outstanding market fit algorithm, virtually any type of underlying derivative can be calibrated precisely by Pricing Partners.

Zaizhi Wang, financial engineer at Pricing Partners, comments: “As a great advantage in Price-it solution, one can use either constant or time dependent parameters for a Heston model. Our newly implemented Simplex enables us to calibrate the time dependent parameters for a stochastic volatility models with a good fit on the entire volatility surface. Users can even choose constant or time dependent parameters. They can also easily retrieve calibration error and quickly measure the overall fitting error for the entire smile surface. I consider the Simplex algorithm robust and reliable in calibration.”

Pricing Partners CEO, Eric Benhamou, adds: “Calibration is key to valuation. Improving the calibration enables us to provide more accurate models and provide unmatched precision in our valuation. Time dependent stochastic volatility models are currently the latest cutting edge models and generate smile and forward smile very consistent to the market. Proving powerful calibration sets therefore gives us a clear advantage to our competitors and positions us as a leading independent valuation and analytics provider”

Subscribe to our newsletter

Related content

WEBINAR

Upcoming Webinar: Strategies and solutions for unlocking value from unstructured data

27 March 2025 11:00am ET | 3:00pm London | 4:00pm CET Duration: 50 Minutes Unstructured data accounts for a growing proportion of the information that capital markets participants are using in their day-to-day operations. Technology – especially generative artificial intelligence (GenAI) – is enabling organisations to prise crucial insights from sources – such as social...

BLOG

Broadridge Tradeverse – When a Data Lake is Not a Data Lake

Hugh Daly, Broadridge Financial Solutions’ head of capital markets data and artificial intelligence, is being mischievous when he describes the company’s latest innovation, its Tradeverse data platform. “It must sound very much like Tradeverse is a data lake – if it quacks like a data lake and walks like a data lake, fundamentally it must...

EVENT

ESG Data & Tech Briefing London

The ESG Data & Tech Briefing will explore challenges around assembling and evaluating ESG data for reporting and the impact of regulatory measures and industry collaboration on transparency and standardisation efforts. Expert speakers will address how the evolving market infrastructure is developing and the role of new technologies and alternative data in improving insight and filling data gaps.

GUIDE

Dealing with Reality – How to Ensure Data Quality in the Changing Entity Identifier Landscape

“The Global LEI will be a marathon, not a sprint” is a phrase heard more than once during our series of Hot Topic webinars that’s charted the emergence of a standard identifier for entity data. Doubtless, it will be heard again. But if we’re not exactly sprinting, we are moving pretty swiftly. Every time I...