Explicit No Arbitrage Domain for Sub-SVIs via Reparametrization
41 Pages Posted: 8 Jun 2021
Date Written: June 4, 2021
The no Butterfly arbitrage domain of Gatheral SVI 5-parameters formula for the volatility smile has been recently described. It requires in general a numerical minimization of 2 functions altogether with a few root finding procedures. We study here the case of some sub-SVIs (all with 3 parameters): the Symmetric SVI, the Vanishing Upward/Downward SVI, and SSVI, for which we provide an explicit domain, with no numerical procedure required.
Keywords: Implied volatility, volatility smile, calibration, SVI, sub-SVIs, arbitrage-free parameterization
JEL Classification: G12, G13, C60, C63
Suggested Citation: Suggested Citation