Download This PaperBuilding Arbitrage-Free Implied Volatility: Sinkhorn's Algorithm and Variants
19 Pages Posted: 8 Feb 2019
Date Written: January 31, 2019
Abstract
We consider the classical problem of building an arbitrage-free implied volatility surface from bid-ask quotes. We design a fast numerical procedure, for which we prove the convergence, based on the Sinkhorn algorithm that has been recently used to solve efficiently (martingale) optimal transport problems.
Suggested Citation: Suggested Citation
De March, Hadrien and De March, Hadrien and Henry-Labordere, Pierre, Building Arbitrage-Free Implied Volatility: Sinkhorn's Algorithm and Variants (January 31, 2019). Available at SSRN: https://ssrn.com/abstract=3326486 or http://dx.doi.org/10.2139/ssrn.3326486
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