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Moving Least Squares for Arbitrage-Free Price and Volatility Surfaces

  • Pascal HeiderEmail author
Conference paper
Part of the Springer Proceedings in Mathematics & Statistics book series (PROMS, volume 19)

Abstract

To price exotic options consistently to market data, it is necessary to approximate the implied volatility surface (IVS) over the strike–maturity plane. To avoid mis-pricing and arbitrage strategies, the approximation must be arbitrage free. Based on the moving least squares (MLS) reconstruction, a numerical approach is presented in this paper to compute arbitrage-free surfaces which approximate observed market data.

Keywords

Local Constraint Move Little Square Polynomial Space Local Volatility Traded Option 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Springer Science+Business Media New York 2012

Authors and Affiliations

  1. 1.Mathematisches InstitutUniversität zu KölnKölnGermany

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