A new arbitrage-free parametric volatility surface

A new arbitrage-free volatility surface with closed-form valuation and local volatility is introduced

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Alexandre Antonov, Michael Spector and Michael Konikov describe a new parametric volatility surface that is arbitrage free, is extremely rich and flexible, and has closed-form expressions for both European option values and local volatilities. The volatility surface is based on previous work by Carr and Pelts, for which the present authors provide a simple derivation and a concrete implementation

Parametric volatility surfaces are used in finance and financial

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