Just tried it in Chrome -- loaded fine.Is that link broke?There is a nice method by Fengler
Note the distinction between interpolating splines and smoothing splines.
Impressive. I cannot believe any parametric models can achieve such robust results.. liquid or illiquid, ATM or wings.. Are there any public models that can achieve anything similar.. or closer..?If you need an industrial-strength solution you can check out Vola Dynamics (disclaimer - I am affiliated).
Here is an example of a fully automated fit right before Brexit:
The fits are parametric, arb-free, very robust, and fairly fast.
Hi Alan, my main objective is to get a smoothed vol smile (I don't worry about the entire vol surface for this particular purpose) that can fits within bid/ask for all the quoted strikes in all cases (ATM/wings, liquid or illiquid). The best result I have so far is Fengler that you recommended above. However there are still many cases that the smoothed vols stay outside of bid/ask no matter how I tune the smoothing factor..If you need to extrapolate the IV time slices outside the available strikes, I have some nice fits here. See pages 30, 31.
I am using Gaussian mixture model fits, which have some nice properties, esp. for my application (equity risk premium), and lead to interesting extrapolations.
However, calendar arb removal, which is discussed in the paper, is somewhat ad hoc, and would require more work to assure. That was a peripheral issue for me, so haven't pursued it beyond the discussion in the paper. The two solutions discussed above are apparently arb-free.
I wasn't able to find an example quickly.. I observed this many times intraday on some illiquid names. You may be right as some underlyings were often hard-to-borrow which I probably didn't factor-in in the model properly. Sometimes I want to have a simple view on "BS implied vol without cost-of-carry".. [I know this is clearly 'wrong' but this is sometimes easier and more convenient for me to make trading decision.]Hi, perhaps you can post a plot that shows a problematic case, showing the IV_bid - IV_ask intervals at each strike. Also, sometimes the cost-of-carry method is a source of problems, so you might explain how you handled that.
I watch many markets simultaneously so the automatic calibration on the smoothing parameter is kinda important. It's fine to have the calibrated smoothing parameter a bit off from my judgement but at least it should be close (i.e. fit everything within bid/ask)