Multi-Asset Spot and Option Market Simulation

• URL: http://arxiv.org/abs/2112.06823v1
• Date: Mon, 13 Dec 2021 17:34:28 GMT
• Title: Multi-Asset Spot and Option Market Simulation
• Abstract summary: We construct realistic spot and equity option market simulators for a single underlying on the basis of normalizing flows. We leverage the conditional invertibility property of normalizing flows and introduce a scalable method to calibrate the joint distribution of a set of independent simulators.
• Score: 52.77024349608834
• License: http://arxiv.org/licenses/nonexclusive-distrib/1.0/
• Abstract: We construct realistic spot and equity option market simulators for a single underlying on the basis of normalizing flows. We address the high-dimensionality of market observed call prices through an arbitrage-free autoencoder that approximates efficient low-dimensional representations of the prices while maintaining no static arbitrage in the reconstructed surface. Given a multi-asset universe, we leverage the conditional invertibility property of normalizing flows and introduce a scalable method to calibrate the joint distribution of a set of independent simulators while preserving the dynamics of each simulator. Empirical results highlight the goodness of the calibrated simulators and their fidelity.

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