De-Arbitraging with a Weak Smile: Application to Skew Risk

@article{MahdaviDamghani2013DeArbitragingWA,
  title={De-Arbitraging with a Weak Smile: Application to Skew Risk},
  author={Babak Mahdavi-Damghani and Andrew Kos},
  journal={ERN: Volatility (Topic)},
  year={2013}
}
The aim of this article is to address the methodology behind de-arbitraging a realistic volatility surface and stressing it without adding arbitrages. We derive from basic principles the constraints which the changes on the strike and the tenor axis must satisfy in order to make a volatility surface arbitrage-free. The two most influential parameterized versions of the volatility surface will then be discussed, along with their origin and their limitations. Furthermore, this review will address… 
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