Quantitative Finance, Vol. 14, No. 1, 59-71, 2014.
27 Pages Posted: 3 Apr 2012 Last revised: 15 Jan 2014
Date Written: 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.
Keywords: implied volatility, volatility surface, arbitrage-free parameterization, SVI, calibration
JEL Classification: G12, G13, C60, C63
Suggested Citation: Suggested Citation
Gatheral, Jim and Jacquier, Antoine, Arbitrage-Free SVI Volatility Surfaces (March 17, 2013). Quantitative Finance, Vol. 14, No. 1, 59-71, 2014.. Available at SSRN: https://ssrn.com/abstract=2033323 or http://dx.doi.org/10.2139/ssrn.2033323