Implied Volatility Surface: Construction Methodologies and Characteristics
Computational Finance
2011-07-12 v1 Pricing of Securities
Abstract
The implied volatility surface (IVS) is a fundamental building block in computational finance. We provide a survey of methodologies for constructing such surfaces. We also discuss various topics which can influence the successful construction of IVS in practice: arbitrage-free conditions in both strike and time, how to perform extrapolation outside the core region, choice of calibrating functional and selection of numerical optimization algorithms, volatility surface dynamics and asymptotics.
Cite
@article{arxiv.1107.1834,
title = {Implied Volatility Surface: Construction Methodologies and Characteristics},
author = {Cristian Homescu},
journal= {arXiv preprint arXiv:1107.1834},
year = {2011}
}
Comments
40 pages