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Arbitrage‐free call option surface construction using regression splines

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  • Greg Orosi

Abstract

In this work, we suggest a novel quadratic programming‐based algorithm to generate an arbitrage‐free call option surface. The empirical performance of the proposed method is evaluated using S&P 500 Index call options. Our results indicate that the proposed method provides a more precise fit to observed option prices than other alternative methodologies. Copyright © 2014 John Wiley & Sons, Ltd.

Suggested Citation

  • Greg Orosi, 2015. "Arbitrage‐free call option surface construction using regression splines," Applied Stochastic Models in Business and Industry, John Wiley & Sons, vol. 31(4), pages 515-527, July.
    • Handle: RePEc:wly:apsmbi:v:31:y:2015:i:4:p:515-527
    DOI: 10.1002/asmb.2045
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    Cited by:

    1. Wenyong Zhang & Lingfei Li & Gongqiu Zhang, 2021. "A Two-Step Framework for Arbitrage-Free Prediction of the Implied Volatility Surface," Papers 2106.07177, arXiv.org, revised Jan 2022.
    2. 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.

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