Arbitrage-Free SVI Volatility Surfaces
Baruch College, CUNY
Imperial College London - Department of Mathematics
March 17, 2013
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.
Number of Pages in PDF File: 27
Keywords: implied volatility, volatility surface, arbitrage-free parameterization, SVI, calibration
JEL Classification: G12, G13, C60, C63working papers series
Date posted: April 3, 2012 ; Last revised: March 25, 2013
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