Difference between Heston and Vanna-Volga Models...
Got to admit this question borders on being hardcore quant, but would appreciate any feedback I can get.
Specifically, what are the main differences (in application) between the Heston and Vanna-Volga models in pricing trades? Are there any particular type of exotic trades which one model is better in (if so, which ones)? What structures are better priced using the other model?
I would also appreciate if someone can provide insights into the relative merits of the two models with respect to a variation in skew.
iirc heston models are stochastic vol and are better for longer maturity trades
Thanks for the insights.
Are there then any particular structures (exotic) that you'd use the heston for and not the GARCH?
For what structures would the GARCH (modelling the random stochastic vols as a function of the variance instead of the square root of the variance under Heston) be more appropriate?
At what point would it make sense to adopt another model instead of simply recalibrating the parameters within the original model?
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