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GROMM: Generative Risk-neutral Option Market Models

Author

Listed:
  • Magnus Wiese
  • Hans Buehler
  • Blanka Horvath

Abstract

We present a statically and dynamically arbitrage-free European option market model with smooth interpolation between option prices, based on the SANOS framework, and prove that its dynamics admit a unique strong solution. In spirit, it is a stochastic model for local volatility when the latter is used as a representation of a European option price surface, not as a pricing model. We illustrate the strength of our approach on S&P Index Option data from January 2022 to August 2025. We show that the model's initial state fits within bid/ask for more than 95% of relevant market option prices. We then train the model dynamics under $\mathbb{P}$ and $\mathbb{Q}$ and show that the model is indeed free of arbitrage while fitting the dynamics of the market well. We also propose a range of BHW-tests to test for absence of arbitrage.

Suggested Citation

  • Magnus Wiese & Hans Buehler & Blanka Horvath, 2026. "GROMM: Generative Risk-neutral Option Market Models," Papers 2610.16732, arXiv.org, revised Oct 2026.
    • Handle: RePEc:arx:papers:2610.16732
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    References listed on IDEAS

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