IDEAS home Printed from https://ideas.repec.org/p/arx/papers/2207.02989.html
   My bibliography  Save this paper

Unbiasing and robustifying implied volatility calibration in a cryptocurrency market with large bid-ask spreads and missing quotes

Author

Listed:
  • Mnacho Echenim
  • Emmanuel Gobet
  • Anne-Claire Maurice

Abstract

We design a novel calibration procedure that is designed to handle the specific characteristics of options on cryptocurrency markets, namely large bid-ask spreads and the possibility of missing or incoherent prices in the considered data sets. We show that this calibration procedure is significantly more robust and accurate than the standard one based on trade and mid-prices.

Suggested Citation

  • Mnacho Echenim & Emmanuel Gobet & Anne-Claire Maurice, 2022. "Unbiasing and robustifying implied volatility calibration in a cryptocurrency market with large bid-ask spreads and missing quotes," Papers 2207.02989, arXiv.org.
    • Handle: RePEc:arx:papers:2207.02989
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/2207.02989
    File Function: Latest version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Fouque,Jean-Pierre & Papanicolaou,George & Sircar,Ronnie & Sølna,Knut, 2011. "Multiscale Stochastic Volatility for Equity, Interest Rate, and Credit Derivatives," Cambridge Books, Cambridge University Press, number 9780521843584, November.
    2. Jim Gatheral & Antoine Jacquier, 2014. "Arbitrage-free SVI volatility surfaces," Quantitative Finance, Taylor & Francis Journals, vol. 14(1), pages 59-71, January.
    3. Judith Glaser & Pascal Heider, 2012. "Arbitrage-free approximation of call price surfaces and input data risk," Quantitative Finance, Taylor & Francis Journals, vol. 12(1), pages 61-73, August.
    4. Matthias Fengler, 2009. "Arbitrage-free smoothing of the implied volatility surface," Quantitative Finance, Taylor & Francis Journals, vol. 9(4), pages 417-428.
    5. Garman, Mark B. & Kohlhagen, Steven W., 1983. "Foreign currency option values," Journal of International Money and Finance, Elsevier, vol. 2(3), pages 231-237, December.
    6. Romain Bompis & Emmanuel Gobet, 2012. "Asymptotic and non asymptotic approximations for option valuation," Post-Print hal-00720650, HAL.
    7. Matthew Lorig & Stefano Pagliarani & Andrea Pascucci, 2017. "Explicit Implied Volatilities For Multifactor Local-Stochastic Volatility Models," Mathematical Finance, Wiley Blackwell, vol. 27(3), pages 926-960, July.
    8. Jim Gatheral & Antoine Jacquier, 2011. "Convergence of Heston to SVI," Quantitative Finance, Taylor & Francis Journals, vol. 11(8), pages 1129-1132.
    9. Pierre Cohort & Jacopo Corbetta & Claude Martini & Ismail Laachir, 2018. "Robust calibration and arbitrage-free interpolation of SSVI slices," Papers 1804.04924, arXiv.org, revised Mar 2019.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:hal:wpaper:hal-03715921 is not listed on IDEAS
    2. Mnacho Echenim & Emmanuel Gobet & Anne-Claire Maurice, 2023. "Unbiasing and robustifying implied volatility calibration in a cryptocurrency market with large bid-ask spreads and missing quotes," Post-Print hal-03715921, HAL.
    3. Jim Gatheral & Antoine Jacquier, 2014. "Arbitrage-free SVI volatility surfaces," Quantitative Finance, Taylor & Francis Journals, vol. 14(1), pages 59-71, January.
    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.
    5. Tahar Ferhati, 2020. "Robust Calibration For SVI Model Arbitrage Free," Working Papers hal-02490029, HAL.
    6. Wang, Ximei & Zhao, Yanlong & Bao, Ying, 2019. "Arbitrage-free conditions for implied volatility surface by Delta," The North American Journal of Economics and Finance, Elsevier, vol. 48(C), pages 819-834.
    7. Mehdi El Amrani & Antoine Jacquier & Claude Martini, 2019. "Dynamics of symmetric SSVI smiles and implied volatility bubbles," Papers 1909.10272, arXiv.org, revised Feb 2021.
    8. Itkin, Andrey, 2015. "To sigmoid-based functional description of the volatility smile," The North American Journal of Economics and Finance, Elsevier, vol. 31(C), pages 264-291.
    9. Tahar Ferhati, 2020. "SVI Model Free Wings," Working Papers hal-02517572, HAL.
    10. Boswijk, H. Peter & Laeven, Roger J.A. & Vladimirov, Evgenii, 2024. "Estimating option pricing models using a characteristic function-based linear state space representation," Journal of Econometrics, Elsevier, vol. 244(1).
    11. Jacquier, Antoine & Roome, Patrick, 2016. "Large-maturity regimes of the Heston forward smile," Stochastic Processes and their Applications, Elsevier, vol. 126(4), pages 1087-1123.
    12. Vedant Choudhary & Sebastian Jaimungal & Maxime Bergeron, 2023. "FuNVol: A Multi-Asset Implied Volatility Market Simulator using Functional Principal Components and Neural SDEs," Papers 2303.00859, arXiv.org, revised Dec 2023.
    13. Filippo de Feo, 2020. "The Averaging Principle for Non-autonomous Slow-fast Stochastic Differential Equations and an Application to a Local Stochastic Volatility Model," Papers 2012.09082, arXiv.org, revised Jan 2021.
    14. Martin Tegn'er & Stephen Roberts, 2019. "A Probabilistic Approach to Nonparametric Local Volatility," Papers 1901.06021, arXiv.org, revised Jan 2019.
    15. Arindam Kundu & Sumit Kumar & Nutan Kumar Tomar, 2024. "A Semi-Closed Form Approximation of Arbitrage-Free Call Option Price Surface," Computational Economics, Springer;Society for Computational Economics, vol. 63(4), pages 1431-1457, April.
    16. 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.
    17. Chun Yat Yeung & Ali Hirsa, 2022. "Saddle-Point Approach to Large-Time Volatility Smile," Papers 2212.05671, arXiv.org.
    18. Pascal François & Rémi Galarneau‐Vincent & Geneviève Gauthier & Frédéric Godin, 2022. "Venturing into uncharted territory: An extensible implied volatility surface model," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 42(10), pages 1912-1940, October.
    19. Hadrien De March & Pierre Henry-Labordere, 2019. "Building arbitrage-free implied volatility: Sinkhorn's algorithm and variants," Papers 1902.04456, arXiv.org, revised Jul 2023.
    20. Nicola F. Zaugg & Leonardo Perotti & Lech A. Grzelak, 2024. "Volatility Parametrizations with Random Coefficients: Analytic Flexibility for Implied Volatility Surfaces," Papers 2411.04041, arXiv.org, revised Nov 2024.
    21. Elisa Alòs & Rafael De Santiago & Josep Vives, 2015. "Calibration Of Stochastic Volatility Models Via Second-Order Approximation: The Heston Case," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 18(06), pages 1-31.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:arx:papers:2207.02989. 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.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with 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: arXiv administrators (email available below). General contact details of provider: http://arxiv.org/ .

    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.