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Arbitrage-Free Smoothing of the Implied Volatility Surface

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Function to smooth call option prices and implied volatilities free of static arbitrage.



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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.

Comments and Ratings (1)


AARON (view profile)

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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