Implied Volatility Surface: Construction Methodologies and Characteristics
Copyright policy )Implied Volatility Surface: Construction Methodologies and Characteristics
The implied volatility surface (IVS) is a fundamental building block in computational finance. We provide a survey of methodologies for constructing such surfaces. We also discuss various topics which can influence the successful construction of IVS in practice: arbitrage-free conditions in both strike and time, how to perform extrapolation outside the core region, choice of calibrating functional and selection of numerical optimization algorithms, volatility surface dynamics and asymptotics.
40 pages
FOS: Economics and business, Quantitative Finance - Computational Finance, Computational Finance (q-fin.CP), Pricing of Securities (q-fin.PR), Quantitative Finance - Pricing of Securities
FOS: Economics and business, Quantitative Finance - Computational Finance, Computational Finance (q-fin.CP), Pricing of Securities (q-fin.PR), Quantitative Finance - Pricing of Securities
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