Arbitrage Free Implied Volatility Surfaces

Michael Roper


This paper establishes sufficient conditions for an implied volatility surface to be from "static arbitrage". The conditions are shown to be necessary under certain (very mild) conditions. Application is made top determining whether or not some proposed implied volatility smiles are free of static arbitrage.

Keywords: implied volatility, market models.

This paper is available as a pdf (208kB) file.

Wednesday, March 31, 2010