IDEAS home Printed from https://ideas.repec.org/a/wly/apsmbi/v27y2011i6p649-659.html
   My bibliography  Save this article

Imposing no‐arbitrage conditions in implied volatilities using constrained smoothing splines

Author

Listed:
  • Márcio Poletti Laurini

Abstract

We apply constrained smoothing B‐splines to the construction of arbitrage‐free implied volatilities and derived measures. The constrained smoothing B‐splines allows the imposition of the constraints of monotonicity and convexity given by the no‐arbitrage conditions in the pricing function. We illustrate the methodology in the construction of implied volatilities and also in the construction of derived measures such as risk‐neutral densities, showing that it can be used as an effective tool for general treatment of option prices. Copyright © 2011 John Wiley & Sons, Ltd.

Suggested Citation

  • Márcio Poletti Laurini, 2011. "Imposing no‐arbitrage conditions in implied volatilities using constrained smoothing splines," Applied Stochastic Models in Business and Industry, John Wiley & Sons, vol. 27(6), pages 649-659, November.
    • Handle: RePEc:wly:apsmbi:v:27:y:2011:i:6:p:649-659
    DOI: 10.1002/asmb.877
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/asmb.877
    Download Restriction: no
    File URL: https://libkey.io/10.1002/asmb.877?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Beer, Simone & Braun, Alexander, 2022. "Market-consistent valuation of natural catastrophe risk," Journal of Banking & Finance, Elsevier, vol. 134(C).
    2. Fengler, Matthias & Hin, Lin-Yee, 2011. "Semi-nonparametric estimation of the call price surface under strike and time-to-expiry no-arbitrage constraints," Economics Working Paper Series 1136, University of St. Gallen, School of Economics and Political Science, revised May 2013.
    3. Fengler, Matthias R. & Hin, Lin-Yee, 2015. "Semi-nonparametric estimation of the call-option price surface under strike and time-to-expiry no-arbitrage constraints," Journal of Econometrics, Elsevier, vol. 184(2), pages 242-261.
    4. Bender Christian & Thiel Matthias, 2020. "Arbitrage-free interpolation of call option prices," Statistics & Risk Modeling, De Gruyter, vol. 37(1-2), pages 55-78, January.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:apsmbi:v:27:y:2011:i:6:p:649-659. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://doi.org/10.1002/(ISSN)1526-4025 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.