Robust calibration and arbitrage-free interpolation of SSVI slices

Pierre Cohort, Jacopo Corbetta, Claude Martini and Ismail Laachir

Papers from arXiv.org

Abstract: We describe a robust calibration algorithm of a set of SSVI slices (i.e. a set of 3 SSVI parameters $\theta, \rho, \varphi$ 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.

Date: 2018-04, Revised 2019-03
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1804.04924

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