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Extrapolation Procedure

To provide volatility curves for options on underliers without existing reliable options markets, we carry out an extrapolation procedure.
Arrow's pricing engine trains a model on option and underlying price histories that uses features of underlying price dynamics to extrapolate implied volatility surfaces. We then apply the extrapolation model to underyings that don't have existing options markets. We apply a set of safety checks to the resulting option prices before making an extrapolated curve live.
Last modified 1mo ago