Free Boundary SABR with Arbitrage-Free Finite Difference Methods
Posted: 13 Feb 2016
Date Written: March 1, 2015
This paper applies finite difference schemes to the free-boundary SABR problem that allows negative rates without shift. We reuse Hagan’s arbitrage free PDE approach, and briefly discuss the behavior of this alternate SABR model.
Keywords: stochastic volatility, SABR, TR-BDF2, Crank-Nicolson, finite difference, finance
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