On pricing Options the volatility surface is represented by a mathematical model (with parameters).
- What does it mean to calibrate the volatility surface
- How often has the volatility surface to be calibrated
- What factors determine when the volatility surface to be calibrated
I know about the volatility smile graph (implied volatility vs strike price for a particular expiry), I would assume this graph can be mathematically represented by a spline with anchor points
With this in mind, what does it mean to 'calibrate the volatility surface' ? - Does it mean we would have to change anchor points based off updated market data (option prices in the market used to calculate the new implied volatility) ?