Rogers, L.C.G. and Veraart, Luitgard A. M. (2008) A stochastic volatility alternative to SABR. Journal of applied probability, 45 (4). pp. 1071-1085. ISSN 0021-9002
Abstract
We present two new stochastic volatility models in which option prices for European plain-vanilla options have closed-form expressions. The models are motivated by the well-known SABR model, but use modified dynamics of the underlying asset. The asset process is modelled as a product of functions of two independent stochastic processes: a Cox-Ingersoll-Ross process and a geometric Brownian motion. An application of the models to options written on foreign currencies is studied.
| Item Type: | Article |
|---|---|
| Official URL: | http://www.appliedprobability.org/content.aspx?Gro... |
| Additional Information: | © 2008 Applied Probability Trust |
| Uncontrolled Keywords: | SABR, European option, volatility smile |
| Library of Congress subject classification: | H Social Sciences > HB Economic Theory Q Science > QA Mathematics |
| Journal of Economic Literature Classification System: | C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C73 - Stochastic and Dynamic Games; Evolutionary Games; Repeated Games |
| Sets: | Departments > Mathematics Collections > Economists Online |
| Rights: | http://www.lse.ac.uk/library/rights/LSERO.htm |
| URL: | http://eprints.lse.ac.uk/37620/ |
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