TITLE:
A Note about Characterization of Calendar Spread Arbitrage in eSSVI Surfaces
AUTHORS:
Leo Pasquazzi
KEYWORDS:
Volatility Model, eSSVI Surface, Arbitrage Bounds
JOURNAL NAME:
Theoretical Economics Letters,
Vol.13 No.5,
October
30,
2023
ABSTRACT: This paper provides a little correction to a
proposition about calendar spread arbitrage in eSSVI volatility surfaces and
gives exact conditions under which two eSSVI slices have tangency points
without crossing over each other. The original proposition was stated in the
paper where Hendriks and Martini (2019) introduced the eSSVI surface model.
However the original statement (and the one given in a preprint version which
is slightly different) is wrong and from the original proofs (which are
slightly different in the preprint and final article) it is not obvious to
infer the correct statement. The proof given in this paper is based on the main
ideas of the original proof, but it fills in several details which eventually
lead to a sharper result.