Arbitrage‐free call option surface construction using regression splines | Zendy

Orosi Greg | Zendy

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Arbitrage‐free call option surface construction using regression splines

Author(s) -

Orosi Greg

Publication year - 2014

Publication title -

applied stochastic models in business and industry

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.413

H-Index - 40

eISSN - 1526-4025

pISSN - 1524-1904

DOI - 10.1002/asmb.2045

Subject(s) - arbitrage , call option , index (typography) , econometrics , computer science , regression , quadratic equation , mathematical optimization , economics , mathematics , financial economics , statistics , geometry , world wide web

In this work, we suggest a novel quadratic programming‐based algorithm to generate an arbitrage‐free call option surface. The empirical performance of the proposed method is evaluated using S&P 500 Index call options. Our results indicate that the proposed method provides a more precise fit to observed option prices than other alternative methodologies. Copyright © 2014 John Wiley & Sons, Ltd.

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