Mass at zero in the uncorrelated SABR model and implied volatility asymptotics

Archil Gulisashvili, Blanka Horvath and Antoine Jacquier ()

Papers from arXiv.org

Abstract: We study the mass at the origin in the uncorrelated SABR stochastic volatility model, and derive several tractable expressions, in particular when time becomes small or large. As an application--in fact the original motivation for this paper--we derive small-strike expansions for the implied volatility when the maturity becomes short or large. These formulae, by definition arbitrage free, allow us to quantify the impact of the mass at zero on existing implied volatility approximations, and in particular how correct/erroneous these approximations become.

Date: 2015-02, Revised 2016-11
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://arxiv.org/pdf/1502.03254 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:1502.03254

Access Statistics for this paper

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