Arbitrage-free implied volatility surfaces for options on single stock futures

The current method employed by the Johannesburg Stock Exchange11www.jse.co.za. (JSE) to determine implied volatility is based on trade data and a linear deterministic approach. The aim of this paper is to construct a market-related arbitrage-free implied volatility surface, by using a quadratic deterministic function, for two stock indices and ten single stock futures (SSFs). Actual traded data is used and we show practically how all no-arbitrage conditions are implemented and tested.

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Year of publication:	2013
Authors:	Kotzé, Antonie ; Labuschagne, Coenraad C.A. ; Nair, Merell L. ; Padayachi, Nadine
Published in:	The North American Journal of Economics and Finance. - Elsevier, ISSN 1062-9408. - Vol. 26.2013, C, p. 380-399
Publisher:	Elsevier
Subject:	Volatility surface \| Options on single stock futures \| Quadratic deterministic function

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Type of publication:	Article
Classification:	C61 - Optimization Techniques; Programming Models; Dynamic Analysis ; G17 - Financial Forecasting
Source:	RePEc - Research Papers in Economics

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