SABR smiles for RFR caplets

Sander Willems

Papers from arXiv.org

Abstract: We present a natural extension of the SABR model to price both backward and forward-looking RFR caplets in a post-Libor world. Forward-looking RFR caplets can be priced using the market standard approximations of Hagan et al. (2002). We provide closed-form effective SABR parameters for pricing backward-looking RFR caplets. These results are useful for smile interpolation and for analyzing backward and forward-looking smiles in normalized units.

Date: 2020-04, Revised 2020-05
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Citations: View citations in EconPapers (3)

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