KTH Matematik |

Rum 3721, Institutionen för
matematik, KTH, Lindstedtsvägen 25, plan 7.
Karta!
The first aim of this thesis is to justify the use of the model and the no static arbitrage conditions from a theoretic point of view. Important theorems by Kellerer and Lee and their proofs are discussed in detail and the conditions are carefully derived. The second aim is to implement the model so that it can be calibrated to real market implied volatility data. A calibration method is presented and the outcome of two numerical experiments validate it. The performance of the calibration method introduced in this thesis is measured in how big a fraction of the total market volume the method manages to fit within the market spread. Tests show that the model manages to fit most of the market volume inside the spread, even for options with short time to maturity. Further tests show that the model is capable to recalibrate an SVI parameter set that allows for static arbitrage opportunities into an SVI parameter set that does not. |

Sidansvarig: Filip Lindskog Uppdaterad: 25/02-2009 |