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A stochastic volatility alternative to SABR

Rogers, L.C.G. and Veraart, Luitgard A. M. ORCID: 0000-0003-1183-2227 (2008) A stochastic volatility alternative to SABR. Journal of Applied Probability, 45 (4). pp. 1071-1085. ISSN 0021-9002

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Identification Number: 10.1239/jap/1231340234


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:
Additional Information: © 2008 Applied Probability Trust
Divisions: Mathematics
Subjects: H Social Sciences > HB Economic Theory
Q Science > QA Mathematics
JEL classification: C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C73 - Stochastic and Dynamic Games; Evolutionary Games; Repeated Games
Date Deposited: 27 Jul 2011 13:45
Last Modified: 01 Jun 2024 03:31

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