Simulation of arbitrage-free implied volatility surfaces
File(s)
Author(s)
Cont, Rama
Vuletić, Milena
Type
Journal Article
Abstract
We present a computationally tractable method for simulating arbitrage-free implied volatility surfaces. We illustrate how our method may be combined with a data-driven model based on historical SPX implied volatility data to generate dynamic scenarios for arbitrage-free implied volatility surfaces. Our approach conciliates static arbitrage constraints with a realistic representation of statistical properties of implied volatility co-movements.
Date Issued
2023-03-04
Date Acceptance
2023-10-25
Citation
Applied Mathematical Finance, 2023, 30 (2), pp.94-121
ISSN
1350-486X
Publisher
Informa UK Limited
Start Page
94
End Page
121
Journal / Book Title
Applied Mathematical Finance
Volume
30
Issue
2
Copyright Statement
© 2023 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group.
This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/
licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
The terms on which this article has been published allow the posting of the Accepted Manuscript in a repository by the author(s) or with their
consent.
This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/
licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
The terms on which this article has been published allow the posting of the Accepted Manuscript in a repository by the author(s) or with their
consent.
License URL
Identifier
http://dx.doi.org/10.1080/1350486x.2023.2277960
Publication Status
Published
Date Publish Online
2023-11-19