Robust calibration and arbitrage-free interpolation of SSVI slices
Computational Finance
2019-03-05 v2 Mathematical Finance
Pricing of Securities
Abstract
We describe a robust calibration algorithm of a set of SSVI slices (i.e. a set of 3 SSVI parameters attached to each option maturity available on the market), which grants that these slices are free of Butterfly and Calendar-Spread arbitrage. Given such a set of consistent SSVI parameters, we show that the most natural interpolation/extrapolation of the parameters provides a full continuous volatility surface free of arbitrage. The numerical implementation is straightforward, robust and quick, yielding an effective, parsimonious solution to the smile problem, which has the potential to become a benchmark one.
Keywords
Cite
@article{arxiv.1804.04924,
title = {Robust calibration and arbitrage-free interpolation of SSVI slices},
author = {Pierre Cohort and Jacopo Corbetta and Claude Martini and Ismail Laachir},
journal= {arXiv preprint arXiv:1804.04924},
year = {2019}
}
Comments
9 pages, 3 figures