Sculpting implied volatility surfaces of illiquid assets

From the stock cumulative distribution function an arbitrage-free volatility surface is derived


Valer Zetocha provides a systematic algorithm to construct a complete, fully consistent implied volatility surface for assets with sparse market option data. The central part of the algorithm is the time-translation of the stock cumulative distribution function that facilitates the generation of non-arbitrageable but market-consistent data for new, non-quoted maturities

“Give me three points and I’ll give you a surface.”
0 — Unknown ancient philosopher


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