Questions tagged [sabr-model]
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27 questions
3 votes
0 answers
134 views
Benchmarks for calibration of vol models
I’m currently working on calibrating volatility models on spx option data (mainly SABR and Heston for now, but I’m also curious about SLV models), and I wanted to ask about practical benchmarks for ...
- 31
0 votes
0 answers
115 views
SABR Model, Hagan et al. approximated formulas
In P. Hagan, D. Kumar, A. Lesniewski, D. Woodward, “Universal Smiles”, Wilmott, issue 84, Jul. 2016 there is an approximated formula for shifted-SABR normal implied volatlities (par. 1.2). In a ...
0 votes
1 answer
176 views
How Does Bartlett’s Delta Affect the Interpretation of Beta in the SABR Model?
In the SABR model, my understanding is that beta essentially determines the backbone of ATM volatility and is usually pre-specified to reflect prior beliefs about the ATM vol skew. However, after ...
- 1
0 votes
0 answers
267 views
Hedging Performance in Local Volatility and SABR Models Across Market Regimes
In "Patterns of Volatility Change" (2008), Emanuel Derman investigates the distinction between the hedge dynamics produced by the local-volatility model and the Black-Scholes model in a ...
- 298
1 vote
0 answers
116 views
Volatility surface PCA and SABR explanation gap
I am wondering how would the results of PCA on a volatility surface would be used differently than the SABR parameters. Given the first three components of a PCA are related to level, smile and skew, ...
- 169
2 votes
1 answer
223 views
Hagan formula for normal volatility
I am not sure I understand how Hagan normal volatility formula works. Basically I have: Lognormal volatility of 0.059 (5.9%) Forward price of the bond 134.5 Bond Strike price 132.5 Option maturity 0....
- 169
0 votes
2 answers
413 views
SABR applications once calibrated
Spend some time writing a script for calibrating SABR to market swaption quotes. I have managed to now get a good fit. My question out of interest is; what is the SABR model actually used for in ...
1 vote
1 answer
544 views
Can you use a forward rate curve to infer the SABR model parameters?
I am currently doing a thesis on a class of SDE parameter inference methods and using the SABR model as an example for inference. I want to extend the application to market data. My question is does ...
4 votes
2 answers
4k views
SABR model - beta
In the SABR model, the parameter beta largely controls the back-bond behaviour of the model. How do people estimate beta? One approach is to regress atm vol vs forward, i.e. $$\ln(\textrm{atm vol}) = \...
- 41
0 votes
1 answer
675 views
Does Heston and SABR match market vol smile perfectly (arbitrage free)?
What I saw in the references is Heston model can matches market option prices perfectly and SABR cannot. Is it correct? But for my understanding, a model matches market option prices perfectly only ...
- 545
0 votes
1 answer
229 views
Why can't the curve find the least squares parameters when I used it in SABR model? (SABR Calibration)
Follow is the SABR function part of my code in python： ...
- 1
2 votes
3 answers
2k views
Calibrate the SABR model to the implied volatility surface
I'm currently trying to calibrate the SABR model. The question I have is that when I consider papers and other websites I only come across cases where the SABR parameters are calibrated to the implied ...
- 23
1 vote
1 answer
1k views
How to build a volatility surface for caps from the SABR model?
My end goal is to build a volatility surface for caps. It's well known that SABR model has Hagan approximation formulas for log-normal and normal implied volatilities of options, e.g. caplets, ...
- 985
5 votes
0 answers
492 views
SABR vs Dupire: when to use what?
I was wondering for which products one would use the (AF)SABR model and for which ones Dupire's Local Volatility model. If I understand correctly, Dupire is by construction Arbitrage-Free but produces ...
- 51
2 votes
1 answer
1k views
Interpreting SABR calibration model output
Calibrate a SABR model? Following on from this question, I have used the same market data they attached but am unsure on interpreting the output. When I plot the SABR probabilities against strike for ...
