Abstract:
We describe a robust calibration algorithm of a set of SSVI slices (i.e., a set of 3 SSVI parameters θ,ρ,φ attached to each option maturity available on the market), which grants that these slices are free of But- terfly and Calendar-Spread arbitrage. Given such a set of consistent SSVI parameters, we show that the most natural interpolation/extrapolation of the parameters povides a full continuous volatility surface free of arbitrage. The numerical implementation is straightforward, robust and quick, yielding an effective, parsimonious benchmark solution to the smile problem.