Leitura do dia - Implied volatility surface: construction methodologies and characteristics

Implied volatility surface: construction methodologies and characteristics

Cristian Homescu
This version: July 9, 2011†

The implied volatility surface (IVS) is a fundamental building block in computational finance. We
provide a survey of methodologies for constructing such surfaces. We also discuss various topics which influence the successful construction of IVS in practice: arbitrage-free conditions in both strike and time, how to perform extrapolation outside the core region, choice of calibrating functional and selection of numerical optimization algorithms, volatility surface dynamics and asymptotics.