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Arbitrage-free SVI volatility surfaces

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  • Jim Gatheral
  • Antoine Jacquier

Abstract

In this article, we show how to calibrate the widely-used SVI parameterization of the implied volatility surface in such a way as to guarantee the absence of static arbitrage. In particular, we exhibit a large class of arbitrage-free SVI volatility surfaces with a simple closed-form representation. We demonstrate the high quality of typical SVI fits with a numerical example using recent SPX options data.

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  • Jim Gatheral & Antoine Jacquier, 2012. "Arbitrage-free SVI volatility surfaces," Papers 1204.0646, arXiv.org, revised Mar 2013.
    • Handle: RePEc:arx:papers:1204.0646
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    1. Roger W. Lee, 2004. "The Moment Formula For Implied Volatility At Extreme Strikes," Mathematical Finance, Wiley Blackwell, vol. 14(3), pages 469-480, July.
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