Wednesday July 18 2012
13:00
Scuola Normale Superiore
Aula 2

James G. M. Gatheral
Baruch College, The City University of New York

Abstract
In this talk we motivate the widely-used SVI (“stochastic volatility inspired”) parameterization of the implied volatility surface and show how to calibrate it in such a way as to guarantee the absence of static arbitrage. In particular, we exhibit a large class of arbitrage-free SVI volatility surfaces with a simple closed-form representation. We demonstrate the high quality of typical SVI fits with a numerical example using recent SPX options data. We conclude by suggesting that SVI might one day replace SABR as the implied volatility parameterization of choice.
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