Arbitrage-Free SVI Volatility Surfaces

Gatheral, Jim; Jacquier, Antoine

doi:10.2139/ssrn.2033323

Abstract

Citations (4)

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Arbitrage-Free SVI Volatility Surfaces

Imperial College London - Department of Mathematics

March 17, 2013

Abstract:
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, C63

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Date posted: April 3, 2012 ; Last revised: March 25, 2013

Suggested Citation

Gatheral, Jim and Jacquier, Antoine, Arbitrage-Free SVI Volatility Surfaces (March 17, 2013). Available at SSRN: http://ssrn.com/abstract=2033323 or http://dx.doi.org/10.2139/ssrn.2033323

Contact Information

Jim Gatheral (Contact Author) Baruch College, CUNY ( email ) Department of Mathematics One Bernard Baruch Way New York, NY 10010 United States
Antoine Jacquier Imperial College London - Department of Mathematics ( email ) South Kensington Campus London SW7 2AZ, SW7 2AZ United Kingdom HOME PAGE: http://www.ma.ic.ac.uk/~ajacquie

Abstract

Citations (4)

Arbitrage-Free SVI Volatility Surfaces

Jim Gatheral

Antoine Jacquier

Date posted: April 3, 2012 ; Last revised: March 25, 2013

Suggested Citation

Contact Information

Jim Gatheral (Contact Author)

Antoine Jacquier