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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 smile 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.

Suggested Citation

  • Jim Gatheral & Antoine Jacquier, 2014. "Arbitrage-free SVI volatility surfaces," Quantitative Finance, Taylor & Francis Journals, vol. 14(1), pages 59-71, January.
    • Handle: RePEc:taf:quantf:v:14:y:2014:i:1:p:59-71
    DOI: 10.1080/14697688.2013.819986
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    References listed on IDEAS

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