Numerix Quantitative Leadership Series: New Arbitrage-Free Parametric Volatility Surface

Finding a good parametric volatility surface is far from a fully solved problem. On Wednesday, April 17th at 10 AM EDT, Dr. Michael Konikov, SVP and Head of Quantitative Development introduced a new parametric volatility surface, Ensemble Carr-Pelts (ECP), that guarantees the absence of arbitrage and has closed form expressions for both options values and local volatility. Numerix ECP can be made parsimonious, and at the same time flexible as needed. The property of having smooth analytic formula for the local volatility can be used in Local Volatility (LV) and Local-Stochastic Volatility (LSV) models when the surface is used as input into these more complicated stochastic models.

In this webinar presentation Dr. Konikov:

  • Reviewed the desirable characteristics of a volatility surface
  • Presented the properties of the new Numerix Ensemble Carr-Pelts (ECP) volatility surface
  • Explained how to calibrate Numerix ECP to market data and how to use it in stochastic models (LV and LSV)
  • Reviewed the most popular parametric volatility surfaces, SABR and Stochastic Volatility Inspired (SVI)
  • Compared Numerix ECP and SVI using accuracy and speed benchmarks

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