Muck, Matthias - In: Review of Derivatives Research 25 (2022) 3, pp. 293-314
This paper addresses arbitrage-free FX smile construction from near-term implied volatility dynamics proposed by Carr (J Financ Econ, 120(1), 1–20, 2016). The approach is directly applicable to FX option market conventions. Prices of market benchmark contracts (risk reversals and butterflies)...