Arbitrage-free SVI volatility surfaces

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...

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Veröffentlicht in:Quantitative finance 2014-01, Vol.14 (1), p.59-71
Hauptverfasser: Gatheral, Jim, Jacquier, Antoine
Format: Artikel
Sprache:eng
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Zusammenfassung: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 options data.
ISSN:1469-7688
1469-7696
DOI:10.1080/14697688.2013.819986