arXiv:2611.12899v1 Announce Type: cross
Abstract: Neural operators (NOs) have been introduced as deep learning-powered solutions to the computational bottleneck of solving families of problems. Once trained, an NO can rapidly output approximate solutions, avoiding the need to rerun classical solvers. However, standard NO architectures cannot guarantee static no-arbitrage when predicting European call-price surfaces from market or model features and, as we verify experimentally, can yield negative PnL in downstream trading tasks.
We introduce a certifiably arbitrage-free (AF) and universal encoder-decoder NO framework, continuously mapping inputs from a reproducing kernel Hilbert space (RKHS) $\mathcal{H}$ over any fixed subset of $[0,\infty)^2$ to a convex combination of arbitrage-free European call-price surfaces by continuously solving an approximate nearest-neighbour problem. We show that a nearest arbitrage-free correction of an unconstrained predicted surface need not exist, implying that no-arbitrage cannot, in general, be restored through post-processing. Further, we show that standard NOs, such as the FNO and certain encoder-decoder NOs, admit parameter configurations whose outputs violate static no-arbitrage. Thus, out-of-the-box NOs generally cannot be certifiably restricted to arbitrage-free configurations, but may only be guided towards them through PINN-type regularization during training.
Abstract: Neural operators (NOs) have been introduced as deep learning-powered solutions to the computational bottleneck of solving families of problems. Once trained, an NO can rapidly output approximate solutions, avoiding the need to rerun classical solvers. However, standard NO architectures cannot guarantee static no-arbitrage when predicting European call-price surfaces from market or model features and, as we verify experimentally, can yield negative PnL in downstream trading tasks.
We introduce a certifiably arbitrage-free (AF) and universal encoder-decoder NO framework, continuously mapping inputs from a reproducing kernel Hilbert space (RKHS) $\mathcal{H}$ over any fixed subset of $[0,\infty)^2$ to a convex combination of arbitrage-free European call-price surfaces by continuously solving an approximate nearest-neighbour problem. We show that a nearest arbitrage-free correction of an unconstrained predicted surface need not exist, implying that no-arbitrage cannot, in general, be restored through post-processing. Further, we show that standard NOs, such as the FNO and certain encoder-decoder NOs, admit parameter configurations whose outputs violate static no-arbitrage. Thus, out-of-the-box NOs generally cannot be certifiably restricted to arbitrage-free configurations, but may only be guided towards them through PINN-type regularization during training.
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