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Proof-Carrying No-Arbitrage Surfaces: Constructive PCA-Smolyak Meets Chain-Consistent Diffusion with c-EMOT Certificates

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  • Jian'an Zhang

Abstract

We study the construction of SPX--VIX (multi\textendash product) option surfaces that are simultaneously free of static arbitrage and dynamically chain\textendash consistent across maturities. Our method unifies \emph{constructive} PCA--Smolyak approximation and a \emph{chain\textendash consistent} diffusion model with a tri\textendash marginal, martingale\textendash constrained entropic OT (c\textendash EMOT) bridge on a single yardstick $\LtwoW$. We provide \emph{computable certificates} with explicit constant dependence: a strong\textendash convexity lower bound $\muhat$ controlled by the whitened kernel Gram's $\lambda_{\min}$, the entropic strength $\varepsilon$, and a martingale\textendash moment radius; solver correctness via $\KKT$ and geometric decay $\rgeo$; and a $1$-Lipschitz metric projection guaranteeing Dupire/Greeks stability. Finally, we report an end\textendash to\textendash end \emph{log\textendash additive} risk bound $\RiskTotal$ and a \emph{Gate\textendash V2} decision protocol that uses tolerance bands (from $\alpha$\textendash mixing concentration) and tail\textendash robust summaries, under which all tests \emph{pass}: for example $\KKT=\CTwoKKT\ (\le 4!\!\times\!10^{-2})$, $\rgeo=\CTworgeo\ (\le 1.05)$, empirical Lipschitz $\CThreelipemp\!\le\!1.01$, and Dupire nonincrease certificate $=\texttt{True}$.

Suggested Citation

  • Jian'an Zhang, 2025. "Proof-Carrying No-Arbitrage Surfaces: Constructive PCA-Smolyak Meets Chain-Consistent Diffusion with c-EMOT Certificates," Papers 2511.09175, arXiv.org.
    • Handle: RePEc:arx:papers:2511.09175
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    References listed on IDEAS

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    6. Mathias Beiglbock & Pierre Henry-Labord`ere & Friedrich Penkner, 2011. "Model-independent Bounds for Option Prices: A Mass Transport Approach," Papers 1106.5929, arXiv.org, revised Feb 2013.
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