Volatility shape-shifters: arbitrage-free shaping of implied volatility surfaces

Manipulating implied volatility surfaces using optimal transport theory has several applications, including data generation


Valer Zetocha introduces a framework for generating arbitrage-free transformations of an implied volatility surface based on optimal transport maps between suitable distributions. He exemplifies his approach by solving standard tasks related to volatility surface alterations, such as time-extrapolation with past market information, modification of the volatility term structure and handling of a market event. The approach is not limited to volatility transformations

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