State the term Calibration in financial model
State the term Calibration in financial model?
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Calibration means selecting parameters in your model there the theoretical prices for exchange-traded contracts output by your model match closely, or as closely as possible, the market prices at an immediate in time. In a sense this is the opposite of fitting parameters to historical time series. When you match prices precisely then you are eliminating arbitrage opportunities, and it is why it is accepted.
What are the characteristics of calibration?
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