# Model Calibration

*Quant & Pricing — Finicade finance glossary*

Calibration is choosing model parameters so the model reproduces prices actually observed in the market, rather than estimating them from history. It's the defining discipline of derivatives pricing: a model that misprices liquid vanillas cannot be trusted on the exotic it was built for. The recurring danger is overfitting — a model flexible enough to match every quote today often extrapolates badly tomorrow.

**Also known as:** calibration, calibrating a model, fitting a model

**Related terms:** [Implied Volatility](https://finicade.com/glossary/implied-volatility), [Volatility Surface](https://finicade.com/glossary/volatility-surface), [Model Risk](https://finicade.com/glossary/model-risk), [Heston Model](https://finicade.com/glossary/heston-model), [SABR Model](https://finicade.com/glossary/sabr-model)

**Taught in:** Mind Over Markets — Overconfidence & Calibration

Source: https://finicade.com/glossary/model-calibration