Arbitrage-free smoothing of the implied volatility surface
نویسندگان
چکیده
منابع مشابه
From arbitrage to arbitrage-free implied volatilities
We propose a method for determining an arbitrage-free density implied by the Hagan formula. (We use the wording “Hagan formula” as an abbreviation of the Hagan– Kumar–Leśniewski–Woodward model.) Our method is based on the stochastic collocation method. The principle is to determine a few collocation points on the implied survival distribution function and project them onto the polynomial of an ...
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The widespread practice of quoting option prices in terms of their Black-Scholes implied volatilities (IVs) in no way implies that market participants believe underlying returns to be lognormal. On the contrary, the variation of IVs across option strike and term to maturity, which is widely referred to as the volatility surface, can be substantial. In this brief review, we highlight some empiri...
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In this article, we show how to calibrate the widely-used SVI parameterization of the implied volatility smile in such a way as to guarantee the absence of static arbitrage. In particular, we exhibit a large class of arbitrage-free SVI volatility surfaces with a simple closed-form representation. We demonstrate the high quality of typical SVI fits with a numerical example using recent SPX optio...
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ژورنال
عنوان ژورنال: Quantitative Finance
سال: 2009
ISSN: 1469-7688,1469-7696
DOI: 10.1080/14697680802595585