Arbitrage-free implied volatility surfaces for options on single stock futures

Antonie Kotzé, Coenraad C.A. Labuschagne, Merell L. Nair and Nadine Padayachi

The North American Journal of Economics and Finance, 2013, vol. 26, issue C, 380-399

Abstract: The current method employed by the Johannesburg Stock Exchange11www.jse.co.za. (JSE) to determine implied volatility is based on trade data and a linear deterministic approach. The aim of this paper is to construct a market-related arbitrage-free implied volatility surface, by using a quadratic deterministic function, for two stock indices and ten single stock futures (SSFs). Actual traded data is used and we show practically how all no-arbitrage conditions are implemented and tested.

Keywords: Volatility surface; Options on single stock futures; Quadratic deterministic function (search for similar items in EconPapers)
JEL-codes: C61 G17 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:26:y:2013:i:c:p:380-399

DOI: 10.1016/j.najef.2013.02.012

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