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Testing of an Arbitrage-free Volatility Surface
The Ensemble Carr-Pelts surface, which is a weighted mixture of standard CarrPelts surfaces, is an arbitrage-free parameterization of an implied volatility surface proposed by Antonov, Konikov and Spector (2019). This dissertation aims to investigate the additional benefits provided by using the Ens...
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| Format: | Thesis |
| Language: | English |
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Department of Finance and Tax
2023
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| _version_ | 1867613242916864000 |
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| access_status_str | Open Access |
| author | Tarr, Grant |
| author2 | Rudd, Ralph |
| author_browse | Rudd, Ralph Tarr, Grant |
| author_facet | Rudd, Ralph Tarr, Grant |
| author_sort | Tarr, Grant |
| collection | Thesis |
| description | The Ensemble Carr-Pelts surface, which is a weighted mixture of standard CarrPelts surfaces, is an arbitrage-free parameterization of an implied volatility surface proposed by Antonov, Konikov and Spector (2019). This dissertation aims to investigate the additional benefits provided by using the Ensemble Carr-Pelts surface as opposed to the standard Carr-Pelts surface. We also show its validity in comparison to stochastic volatility inspired Gatheral (2004) surface, which is widely used by practitioners. The approach adopted was done in three stages, with each stage calibrating to an increasingly complicated surface. Surfaces considered were a flat volatility surface, a surface changing with strike only, and a surface changing with both strike and maturity. Testing revealed that as complexity increased for the implied volatility surface, the Ensemble Carr-Pelts calibrated better than CarrPelts. When compared to the widely accepted stochastic volatility inspired surface; considering no-arbitrage was not enforced, the Ensemble Carr-Pelts performed adequately. However, the Ensemble Carr-Pelts takes significantly longer to calibrate. |
| format | Thesis |
| id | oai:open.uct.ac.za:11427/37375 |
| institution | University of Cape Town (South Africa) |
| language | eng |
| last_indexed | 2026-06-10T12:33:01.081Z |
| license_str | Not specified — see source repository |
| provenance_str_mv | Harvested via OAI-PMH from UCTD — University of Cape Town Open Access Repository |
| publishDate | 2023 |
| publishDateRange | 2023 |
| publishDateSort | 2023 |
| publisher | Department of Finance and Tax |
| publisherStr | Department of Finance and Tax |
| record_format | dspace |
| source_str | UCTD — University of Cape Town Open Access Repository |
| spelling | oai:open.uct.ac.za:11427/37375 Testing of an Arbitrage-free Volatility Surface Tarr, Grant Rudd, Ralph Mathematical Finance The Ensemble Carr-Pelts surface, which is a weighted mixture of standard CarrPelts surfaces, is an arbitrage-free parameterization of an implied volatility surface proposed by Antonov, Konikov and Spector (2019). This dissertation aims to investigate the additional benefits provided by using the Ensemble Carr-Pelts surface as opposed to the standard Carr-Pelts surface. We also show its validity in comparison to stochastic volatility inspired Gatheral (2004) surface, which is widely used by practitioners. The approach adopted was done in three stages, with each stage calibrating to an increasingly complicated surface. Surfaces considered were a flat volatility surface, a surface changing with strike only, and a surface changing with both strike and maturity. Testing revealed that as complexity increased for the implied volatility surface, the Ensemble Carr-Pelts calibrated better than CarrPelts. When compared to the widely accepted stochastic volatility inspired surface; considering no-arbitrage was not enforced, the Ensemble Carr-Pelts performed adequately. However, the Ensemble Carr-Pelts takes significantly longer to calibrate. 2023-03-13T10:02:26Z 2023-03-13T10:02:26Z 2022 2023-02-21T07:22:11Z Master Thesis Masters MPhil http://hdl.handle.net/11427/37375 eng application/pdf Department of Finance and Tax Faculty of Commerce |
| spellingShingle | Mathematical Finance Tarr, Grant Testing of an Arbitrage-free Volatility Surface |
| thesis_degree_str | Master's |
| title | Testing of an Arbitrage-free Volatility Surface |
| title_full | Testing of an Arbitrage-free Volatility Surface |
| title_fullStr | Testing of an Arbitrage-free Volatility Surface |
| title_full_unstemmed | Testing of an Arbitrage-free Volatility Surface |
| title_short | Testing of an Arbitrage-free Volatility Surface |
| title_sort | testing of an arbitrage free volatility surface |
| topic | Mathematical Finance |
| url | http://hdl.handle.net/11427/37375 |
| work_keys_str_mv | AT tarrgrant testingofanarbitragefreevolatilitysurface |