Fengler, Matthias R. - Sonderforschungsbereich Ökonomisches Risiko <Berlin> - 2005
transitionprobabilities and/ or negative local volatilities, and ultimately, into mispricings. Thecommon smoothing algorithms of the implied … volatility surface cannot guarantee the absence arbitrage. Here, we propose an approach for smoothing the implied volatility …-founded theory of natural smoothing splines under suitable shape constraints. Unlike other methods, our approach also works when …