Abstract

http://ssrn.com/abstract=2026350
 
 

Citations (2)



 


 



Advanced Analytics for the SABR Model


Alexandre Antonov


Numerix

Michael Spector


Numerix

March 23, 2012


Abstract:     
In this paper, we present advanced analytical formulas for SABR model option pricing. The first technical result consists of a new exact formula for the zero correlation case. This closed form is a simple 2D integration of elementary functions, particularly attractive for numerical implementation. The second result is an effective approximation of the general correlation case. We use a map to the zero correlation case having a nice behavior on strike edges. The map formulas are easily implemented and do not contain any numerical integration.

These formulas are important in volatility surface construction and CMS products replication because they provide correct behavior for far strikes and reduced approximation error. The latter is also helpful for dynamic SABR models.

Number of Pages in PDF File: 58

Keywords: SABR, closed formula, map approximation, swaption price, CMS replication, volatility surface

JEL Classification: C1, C3, C5, C6

working papers series


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Date posted: March 26, 2012 ; Last revised: September 5, 2012

Suggested Citation

Antonov, Alexandre and Spector, Michael, Advanced Analytics for the SABR Model (March 23, 2012). Available at SSRN: http://ssrn.com/abstract=2026350 or http://dx.doi.org/10.2139/ssrn.2026350

Contact Information

Alexandre Antonov (Contact Author)
Numerix ( email )
8 rue de l'Isly
Paris, 75008
France
Michael Spector
Numerix ( email )
United States
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