SVI
Canonical definition, formula, interpretation, and API reference.
Definition
5-parameter vol surface model. Produces smooth, wing-bounded surfaces for interpolation and pricing, with butterfly and calendar arbitrage checks.
Formula
w(k) = a + b(ρ(k - m) + √((k - m)² + σ²))
5 params per tenor: a, b, ρ, m, σ.
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.
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