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%T Arbitrage-free smoothing of the implied volatility surface %A Fengler, Matthias %J Quantitative Finance %N 4 %P 417-428 %V 9 %D 2009 %K Implied volatility surface; Local volatility; Cubic spline smoothing; No-arbitrage constraints %= 2011-03-17T14:22:00Z %~ http://www.peerproject.eu/ %> https://nbn-resolving.org/urn:nbn:de:0168-ssoar-221375 %X The pricing accuracy and pricing performance of local volatility models depend on the absence of arbitrage in the implied volatility surface. An input implied volatility surface that is not arbitrage-free can result in negative transition probabilities and consequently into mispricings and false greeks. We propose an approach for smoothing the implied volatility smile in an arbitrage-free way. The method is simple to implement, computationally cheap and builds on the well-founded theory of natural smoothing splines under suitable shape constraints. %C GBR %G en %9 journal article %W GESIS - http://www.gesis.org %~ SSOAR - http://www.ssoar.info