Stochastic volatility model used in derivatives markets
In mathematical finance, the SABR model is a stochastic volatility model, which attempts to capture the volatility smile in derivatives markets. The name stands for "stochastic alpha, beta, rho", referring to the parameters of the model. The SABR model is widely used by practitioners in the financial industry, especially in the interest rate derivative markets. It was developed by Patrick S. Hagan, Deep Kumar, Andrew Lesniewski, and Diana Woodward.[1]
^Hagan, Patrick S.; Kumar, Deep; Kesniewski, Andrew S.; Woodward, Diana E. (January 2002). "Managing Smile Risk" (PDF). Wilmott. Vol. 1. pp. 84–108. Archived (PDF) from the original on 2022-04-30. Retrieved 2022-04-30.
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ISBN 0-691-08973-6 Volatility and Correlation: The Perfect Hedger and the Fox. 2004. Wiley. ISBN 0-470-09139-8 The SABR/LIBOR Market Model: Pricing, Calibration...
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