Artikel
Model-free stochastic collocation for an arbitrage-free implied volatility, part II
This paper explores the stochastic collocation technique, applied on a monotonic spline, as an arbitrage-free and model-free interpolation of implied volatilities. We explore various spline formulations, including B-spline representations. We explain how to calibrate the different representations against market option prices, detail how to smooth out the market quotes, and choose a proper initial guess. The technique is then applied to concrete market options and the stability of the different approaches is analyzed. Finally, we consider a challenging example where convex spline interpolations lead to oscillations in the implied volatility and compare the spline collocation results with those obtained through arbitrage-free interpolation technique of Andreasen and Huge.
- Language
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Englisch
- Bibliographic citation
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Journal: Risks ; ISSN: 2227-9091 ; Volume: 7 ; Year: 2019 ; Issue: 1 ; Pages: 1-21 ; Basel: MDPI
- Classification
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Wirtschaft
- Subject
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stochastic collocation
implied volatility
quantitative finance
arbitrage-free
risk neutral density
B-spline
- Event
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Geistige Schöpfung
- (who)
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Le Floc’h, Fabien
Oosterlee, Cornelis Willebrordus
- Event
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Veröffentlichung
- (who)
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MDPI
- (where)
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Basel
- (when)
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2019
- DOI
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doi:10.3390/risks7010030
- Handle
- Last update
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10.03.2025, 11:43 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Artikel
Associated
- Le Floc’h, Fabien
- Oosterlee, Cornelis Willebrordus
- MDPI
Time of origin
- 2019
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