Arbitrage-free smile construction on FX option markets using Garman-Kohlhagen deltas and implied volatilities

DOI10.1007/S11147-022-09189-9MaRDI QIDQ2096155zbMATH OpenOpenAlexFDO

Authors Matthias Muck

Publication date 16 November 2022

Published in Review of Derivatives Research (Search for Journal in Brave)

Copyright license Creative Commons Attribution 4.0 International

Full work available at URL https://doi.org/10.1007/s11147-022-09189-9

zbMATH Keywords

deltaderivativesFX optionsno-arbitragesmile construction

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20)

Recommendations

• Arbitrage-free smoothing of the implied volatility surface
• Arbitrage-free SVI volatility surfaces
• Imposing no-arbitrage conditions in implied volatilities using constrained smoothing splines
• Coupling smiles
• A bias in the volatility smile

Cites work

• A closed-form solution for options with stochastic volatility with applications to bond and currency options
• An affine multicurrency model with stochastic volatility and stochastic interest rates
• The pricing of options and corporate liabilities

Cited in

(1)

• No-arbitrage bounds for the forward smile given marginals

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