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arXiv · 2602.16232

A Wiener Chaos Approach to Martingale Modelling and Implied Volatility Calibration

Pere Diaz-Lozano·Thomas K. Kloster
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Abstract

Calibration to a surface of option prices requires specifying a suitably flexible martingale model for the discounted asset price under a risk-neutral measure. Assuming Brownian noise and mean-square integrability, we construct an over-parameterized model based on the martingale representation theorem. In particular, we approximate the terminal value of the martingale via a truncated Wiener--chaos expansion and recover the intermediate dynamics by computing the corresponding conditional expectations. Using the Hermite-polynomial formulation of the Wiener chaos, we obtain easily implementable expressions that enable fast calibration to a target implied-volatility surface. We illustrate the flexibility and expressive power of the resulting model through numerical experiments on both simulated and real market data.

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BibTeXRIS

Pere Diaz-Lozano, Thomas K. Kloster. 2026-02-18. A Wiener Chaos Approach to Martingale Modelling and Implied Volatility Calibration. https://arxiv.org/abs/2602.16232

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