Arbitrage-free SVI volatility surfaces

DOI10.1080/14697688.2013.819986zbMATH Open1308.91187arXiv1204.0646OpenAlexW3126103175MaRDI QIDQ2879012FDOQ2879012

Authors: Jim Gatheral, Antoine Jacquier 

Publication date: 5 September 2014

Published in: Quantitative Finance (Search for Journal in Brave)

Abstract: In this article, we show how to calibrate the widely-used SVI parameterization of the implied volatility surface 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 options data.

Full work available at URL: https://arxiv.org/abs/1204.0646

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zbMATH Keywords

arbitrage pricingvolatility smile fittingvolatility surfacesbutterfly arbitragestochastic volatility inspired parametrisation

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Numerical methods (including Monte Carlo methods) (91G60) Stochastic particle methods (65C35)

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Cited In (62)

• Simulation of Arbitrage-Free Implied Volatility Surfaces
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• Can a Machine Correct Option Pricing Models?
• FuNVol: multi-asset implied volatility market simulator using functional principal components and neural SDEs
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• Empirical analysis of rough and classical stochastic volatility models to the SPX and VIX markets
• Arbitrage-Free Neural-SDE Market Models
• A linear goal programming method to recover risk neutral probabilities from options prices by maximum entropy
• A general closed form option pricing formula
• Extreme-strike asymptotics for general Gaussian stochastic volatility models
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• Convex regularization of local volatility estimation
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• A finite volume-alternating direction implicit approach for the calibration of stochastic local volatility models
• Extreme-strike comparisons and structural bounds for SPX and VIX options
• Unbiasing and robustifying implied volatility calibration in a cryptocurrency market with large bid-ask spreads and missing quotes
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• Arbitrage-free smile construction on FX option markets using Garman-Kohlhagen deltas and implied volatilities
• On VIX futures in the rough Bergomi model
• Deep learning volatility: a deep neural network perspective on pricing and calibration in (rough) volatility models
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