Jim Gatheral's profile - MoneyScience

In this article, we show how to calibrate the widely-used SVI parameterization of the implied volatility surface in such a way as to guarantee the absence of static arbitrage. In particular, we exhibit a large class of arbitrage-free SVI volatility surfaces with a simple closed-form representation. We demonstrate the high quality of typical SVI fits with a numerical example using recent SPX options data.

(47 days ago)

Jim Gatheral wrote a new blog post titled New: Dynamical Models of Market Impact and Algorithms for Order Execution

In this review article, we present recent work on the regularity of dynamical market impact models and their associated optimal order execution strategies. In particular, we address the question of the stability and existence of optimal strategies, showing that in a large class of models, there is price manipulation and no well-behaved optimal order execution strategy. We also address issues arising from the use of dark pools and predatory trading.

(47 days ago)

Jim Gatheral wrote a new blog post titled REVISION: The Heat-Kernel Most-Likely-Path Approximation

In this article, we derive a new most-likely-path (MLP) approximation for implied volatility in terms of local volatility, based on time-integration of the lowest order term in the heat-kernel expansion. This new approximation formula turns out to be a natural extension of the well-known formula of Berestycki, Busca and Florent. Various other MLP approximations have been suggested in the literature involving different choices of most-likely-path; our work fixes a natural definition of the most-

(47 days ago)

About me:

Jim Gatheral worked at Bank of America and Bankers Trust before heading the Equity Quantitative Analytics group at Merrill Lynch in 1996, where he was a managing director for 17 years. In 1998 he became a fellow of the Masters Program of Mathematics in Finance at the Courant Institute of Mathematical Sciences of New York University. In March 2010 Jim assumed a tenured full professor position at the Financial Engineering Masters Program at Baruch College where he is teaching volatility surface modeling and market microstructure.

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