Wednesday, June 21, 2017

SABR Implied Volatility and Option Prices


I am trying to understand the SABR model. Specifically, I am having difficulty to understand how to calibrate the model parameters, that is,



  • initial variance,

  • volatility of variance,


  • exponent for the forward rate, and

  • correlation between the Brownian motions.


Small example on the above would be useful. Thanks in advance




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