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DYSANOS Generative Dynamic Smooth Arbitrage-free Non-parametric Option Surfaces

Author

Listed:
  • Hans Buehler
  • Blanka Horvath
  • Anastasis Kratsios
  • Magnus Wiese

Abstract

This article presents with DYSANOS the first generative market model for smooth SANOS option surfaces for all strikes and expiries which are free of static arbitrage. Our model is designed to generate entire paths of daily spot and option prices for years in the future. We present a robust and useful if somewhat simplistic baseline in the form of an AR(1) model. We discuss model setup, data pipeline, and training and investigate market reconstruction, stability, and tail behavior. We illustrate model performance on 891 Option Metrics IvyDB S&P Index surfaces from 2022-01-03 through to 2025-08-29. We also demonstrate how to construct numerically a risk-neutral density. As part of this we develop a new test for zero conditional means under a given measure. We show that for a set of 100,000 simulated paths a trading universe of 48 options and spot is numerically free of dynamic arbitrage.

Suggested Citation

  • Hans Buehler & Blanka Horvath & Anastasis Kratsios & Magnus Wiese, 2026. "DYSANOS Generative Dynamic Smooth Arbitrage-free Non-parametric Option Surfaces," Papers 2608.12587, arXiv.org, revised Oct 2026.
    • Handle: RePEc:arx:papers:2608.12587
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    References listed on IDEAS

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    2. Hans Buehler, 2006. "Expensive martingales," Quantitative Finance, Taylor & Francis Journals, vol. 6(3), pages 207-218.
    3. Magnus Wiese & Lianjun Bai & Ben Wood & Hans Buehler, 2019. "Deep Hedging: Learning to Simulate Equity Option Markets," Papers 1911.01700, arXiv.org.
    4. Martin Schweizer & Johannes Wissel, 2008. "Arbitrage-free market models for option prices: the multi-strike case," Finance and Stochastics, Springer, vol. 12(4), pages 469-505, October.
    5. Samuel N. Cohen & Christoph Reisinger & Sheng Wang, 2023. "Arbitrage-Free Neural-SDE Market Models," Applied Mathematical Finance, Taylor & Francis Journals, vol. 30(1), pages 1-46, January.
    6. Rama Cont & Jose da Fonseca & Valdo Durrleman, 2002. "Stochastic Models of Implied Volatility Surfaces," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 31(2), pages 361-377, July.
    7. Rama Cont & Milena Vuletić, 2023. "Simulation of Arbitrage-Free Implied Volatility Surfaces," Applied Mathematical Finance, Taylor & Francis Journals, vol. 30(2), pages 94-121, March.
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