Building arbitrage-free implied volatility: Sinkhorn's algorithm and\n variants

2019/02/12 by Hadrien De March, De March, Hadrien, Pierre Henry‐Labordère +1 · 1 citation
Economics, Econometrics and Finance · #Computational Finance (q-fin.CP) #Economic theories and models #FOS: Economics and business #Stochastic processes and financial applications

paper · pdf · doi:10.48550/arxiv.1902.04456

openalex publication_date 2019/02/12 · openalex created_date 2022/12/28 · openalex updated_date 2026/07/28

Abstract

We consider the classical problem of building an arbitrage-free implied\nvolatility surface from bid-ask quotes. We design a fast numerical procedure,\nfor which we prove the convergence, based on the Sinkhorn algorithm that has\nbeen recently used to solve efficiently (martingale) optimal transport\nproblems.\n

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