Abstract
We describe in detail the Differential Evolution algorithm and tune it to be suitable for a wide range of minimization problems using a testbed of various cost functions. We then use the algorithm in the calibration of the one-factor Hull-White model to caplets and the Libor market model to European swaption data. We also calibrate the Heston model of stochastic volatility to European option data. We find that Differential Evolution consistently results in successful model calibrations and outperforms the Downhill Simplex and Levenberg-Marquardt algorithms. We propose an efficient method for using Differential Evolution to provide fast, reliable calibrations for any pricing model.
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