DYSANOS Generative Dynamic Smooth Arbitrage-free Non-parametric Option Surfaces
Hans Buehler, Blanka Horvath, Anastasis Kratsios
Abstract
This article presents with DYSANOS the first generative market model for smooth SANOS option surfaces for all strikes and expiries which are free of static arbitrage. Our model is designed to generate entire paths of daily spot and option prices for years in the future. We present a robust and useful if somewhat simplistic baseline hidden state generative model in the form of an AR(1) model. We discuss model setup, data pipeline, and training and investigate numerical resence of dynamic arbitrage. We illustrate model performance on Option Metrics' IvyDB S\&P Index data from 2020 to~2025 and compare it to a pure implied-vol PCA model.
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