Arbitrage-free SVI volatility surfaces
Pricing of Securities
2013-03-22 v4
Abstract
In this article, we show how to calibrate the widely-used SVI parameterization of the implied volatility surface 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.
Cite
@article{arxiv.1204.0646,
title = {Arbitrage-free SVI volatility surfaces},
author = {Jim Gatheral and Antoine Jacquier},
journal= {arXiv preprint arXiv:1204.0646},
year = {2013}
}
Comments
25 pages, 6 figures Corrected some typos. Extended bibliography. Paper restructured, Main theorem (Theorem 4.1) improved. Proof of Theorem 4.3 amended