Questions tagged [volatility-interpolation]

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Volatility surface interpolation for Black-Scholes delta hedging

A general question for interpolation method for implied volatility between tenors. I've recently stumbled accross a dataset from http://www.math.ku.dk/rolf/Svend/, and I would like to interpolate the ...
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0answers
89 views

Arbitrage Free Interpolation of Implied Volatility on Time Dimension

I’m working on a project to build a local volatility model out of implied volatility data and I’m currently testing the no-arbitrage version of SVI model as described in this paper Section 5.1 [...
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2answers
757 views

Why use moneyness as an axis on a volatility surface

A simple volatility surface might have X axis = strike, Y axis = expiry and Z axis = implied volatility. But in many papers I see them use moneyness instead of strike. I have two questions. Why do ...
3
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2answers
578 views

Interpolation of FX Vol Surface from non-uniform strike vs tenor grid

TL;DR I'm trying to fit a vol surface to market FX options quotes in order to build a local vol model to price with. Unlike listed options that typically have a nice rectangular grid of strikes and ...
3
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1answer
240 views

Three questions regarding local volatility implementation (based on the Andreasen, Huge article “Volatility interpolation”)

I am new to the area of local volatility interpolation and I am trying to make a decent implementation for calculating the local volatility surface from option prices using the basic methodology from ...
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1answer
135 views

Volatility time weights calculation

I. Clark introduces the concept of volatility time in Foreign Exchange Option Pricing under which the implied volatility should be interpolated in time with the formula below: where w is a weight ...
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0answers
65 views

FX Smile Curve Extrapolation

How a smooth smile curve is generated from 5 smile points : 10D RR, 25D RR, 10D SM, 25D SM and ATM? What are the commonly used extrapolation and interpolation techniques? I have seen people ...
2
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1answer
180 views

FX smile extrapolation

Typically, 5 points data is available for smile construction : 25D RR, 25D SM, 10D RR, 10D SM and ATM. Questions: 1. How is a smooth smile curve generated with the help of these? 2. How is ...
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0answers
189 views

Interpolation of SVI Implied Volatility in parameter space

I am currently working with a slice-wise SVI parametrisation of the implied volatility surface. $\sigma^2(x,t) = a_t + b_t (\rho_t (x - m_t) + \sqrt{(x - m_t)^2 + \theta^2})$ Does anyone have ...
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0answers
144 views

spline Interpolation on volatility surface not smooth

I am testing spline interpolation for volatility surface with Matlab griddedInterpolant function with spline as interpolation and extrapolation method. Here is the original data I used to do ...
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1answer
194 views

Volatility surface tenors

I don't think this has been asked before, but are the tenors on a volatility surface out of spot date for the currency pair or out of value T+0?
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1answer
776 views

Getting option volatility off vol surface

I am currently looking into FX options. I am given a delta-tenor vol surface and I want to get the volatility of an option given its strike and time to expiry. I am reading about the method used and ...
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3answers
666 views

Reference: Vanna, volga, vega approximations

I am looking for a reference on how to approximate implied volatility in a stochastic model vis-a-vis vanna, volga, vega, and other model parameters, in particular the derivation of such equations and ...