Rough SABR Forward Market Model

Reo Adachi, Masaaki Fukasawa, Naoki Iida, Mitsumasa Ikeda, Yo Nakatsu, Ryota Tsurumi and Tomohisa Yamakami

Papers from arXiv.org

Abstract: This paper advances interest rate modeling in the post-LIBOR era by introducing rough stochastic volatility into the Forward Market Model (FMM). We establish a rigorous asymptotic expansion of swaption implied volatility, connecting the FMM to a rough Bergomi-type framework for forward swap rates. This contribution bridges the gap between Heath-Jarrow-Morton (HJM)-consistent forward term rate models and forward swap rate models with stochastic volatility, offering a parsimonious yet precise framework for modeling swaption volatility surfaces. Furthermore, we justify and generalize the widely used "freezing" approximation within a rigorous mathematical framework. The proposed approach enhances the representation of persistent skew and term structure, addressing key challenges in modern fixed income markets.

Date: 2025-09
References: Add references at CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/2509.25975 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:2509.25975

Access Statistics for this paper

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