Efficient valuation method for the SABR model

Hyukjae Park

Papers from arXiv.org

Abstract: In this article, we show how the scaling symmetry of the SABR model can be utilized to efficiently price European options. For special kinds of payoffs, the complexity of the problem is reduced by one dimension. For more generic payoffs, instead of solving the 1+2 dimensional SABR PDE, it is sufficient to solve $N_V$ uncoupled 1+1 dimensional PDE's, where $N_V$ is the number of points used to discretize one dimension. Furthermore, the symmetry argument enables us to obtain prices of multiple options, whose payoffs are related to each other by convolutions, by valuing one of them. The results of the method are compared with the Monte Carlo simulation.

Date: 2013-08, Revised 2013-11
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/1308.0665 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1308.0665

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().