SVI

Q: What is SVI?

SVI uses 5 parameters (a,b,rho,m,sigma) per tenor to fit the entire implied vol smile. Industry standard for vol surface construction.

Q: Why SVI over raw IV?

Raw IV is noisy and sparse. SVI smooths noise, fills gaps, and can be checked for arbitrage.

Q: Why does SVI matter for trading?

SVI is the bread-and-butter surface model for professional vol traders. It lets them price any strike/expiry off a clean, arbitrage-free fit — independent of bid-ask noise in individual quotes. Every serious exotic pricing, variance-swap quoting, or wing-trade system uses SVI or a close relative.

Q: When is SVI good versus bad for a trader?

Good when fit residuals are low and no arb flags — the surface is tradeable for exotics and wing strategies. Bad on illiquid or distorted surfaces where the fit can't reconcile with raw quotes — wing trades fail. Moderate fits are workable for ATM-focused strategies only.

Canonical definition, formula, interpretation, and API reference.

Definition

5-parameter vol surface model. Produces smooth, arbitrage-free surfaces for interpolation and pricing.

Formula

w(k) = a + b(rho(k-m) + sqrt((k-m)^2 + sigma^2))

5 params per tenor: a, b, rho, m, sigma.

Inputs

market option pricesforward pricestime to expiry

Output

svi_parameters per tenor

Interpretation

5 params capture entire smile — compact and stable
Used for interpolation at any strike
Enables arbitrage detection

API Reference

Endpoint

GET /v1/adv_volatility/{symbol}

Tier

Alpha+

Response field

svi_parameters[]

Why SVI Matters for Trading

TL;DR

SVI is the industry-standard parametric vol surface. Five parameters per expiry, arbitrage-free, and stable enough to trade off.

What it measures: Stochastic Volatility Inspired parametrisation: w(k) = a + b·(ρ·(k-m) + √((k-m)² + σ²)) — fitted per expiry.
What it signals: A clean, model-based read of the implied vol surface without bid-ask noise.
Why we measure it: Raw quotes are full of noise, crossed spreads, and stale prints. SVI smooths all that into a usable surface.
Who uses it: Institutional vol traders, structured-products desks, quant PMs. ALPHA TIER.

How to read SVI

Clean fit (low residuals)

Surface tradeable for exotics
Greeks derived from fit are reliable
Wing pricing stable
Core of every vol book

Good for: model-based vol trading

High residuals / frequent arb flags

Surface is broken or stale
Don't trust fitted Greeks
Avoid complex strategies
Common in illiquid names

Bad for: model-dependent trades

Mid residuals

Acceptable for ATM-focused strategies
Avoid wings
Use with caveat
Typical mid-cap surface

Usable with caution

Rules of thumb

SVI is arbitrage-constrained. Fit enforces butterfly and calendar arbitrage-free conditions.
Fit quality is a liquidity signal. Clean SVI = liquid chain. High residuals = thin or distorted.
Pair with variance surface. Variance surface is SVI expressed in total variance — useful for variance swaps.
Refit intraday. Surface shifts. Morning fit is stale by afternoon on active days.
Check arbitrage flags. If the fit produces arb, don't trust it — something is broken.