Implied Volatility Surface: Construction Methodologies and Characteristics

Cristian Homescu

Papers from arXiv.org

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.

Date: 2011-07
New Economics Papers: this item is included in nep-cmp
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Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1107.1834

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