The function is an implementation of the method proposed in Fengler, M. (2009). Arbitrage-Free Smoothing of the Implied Volatility Surface. Quantitative Finance, 9:4, 417-428.
The method uses smoothing splines under shape constraints to estimate call option prices as a function of strike and time-to-maturity. Based on these prices, implied volatilities can be obtained.
Philipp Rindler (2020). Arbitrage-Free Smoothing of the Implied Volatility Surface (https://www.mathworks.com/matlabcentral/fileexchange/46253-arbitrage-free-smoothing-of-the-implied-volatility-surface), MATLAB Central File Exchange. Retrieved .
Xuchen, you would set those to minimum tick
I got some negative prices (although very close to 0). How can I get the implied volatility from these numbers?
Is there a problem when the output gamma \gamma is negative as did in you example?
seems to me that the paper urges to have positive second derivative..
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