We examine the empirical performance of a spline-based, local volatility surface for the period 2000–2005. Our findings indicate that the proposed model outperforms the best-performing implied volatility–based model reported in the current literature for European-style S&P 500 Index options....

In this study, we investigate how useful the information content of out-of-the-money S&P 500 index call options is to predict the size and direction of the underlying index for the period 2004-2013. First, we demonstrate that behavior of the right tail of the option implied risk-neutral...

In this work, we suggest a novel quadratic programming-based algorithm to generate an arbitrage-free call option surface. Our approach relies on a regression spline-based implementation of the framework proposed by Orosi (2011) who presents a multi-parameter extension of the models of Figlewski...