Arbitrage‐free call option surface construction using regression splines |
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| Authors: | Greg Orosi |
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| Institution: | Department of Mathematics and Statistics, American University of Sharjah, Sharjah, UAE |
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| Abstract: | In this work, we suggest a novel quadratic programming‐based algorithm to generate an arbitrage‐free call option surface. The empirical performance of the proposed method is evaluated using S&P 500 Index call options. Our results indicate that the proposed method provides a more precise fit to observed option prices than other alternative methodologies. Copyright © 2014 John Wiley & Sons, Ltd. |
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| Keywords: | nonparametric index option pricing implied volatility arbitrage‐free volatility smile volatility surface interpolation splines |
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