A note on the option price and 'Mass at zero in the uncorrelated SABR model and implied volatility asymptotics'

Jaehyuk Choi and Lixin Wu

Papers from arXiv.org

Abstract: Gulisashvili et al. [Quant. Finance, 2018, 18(10), 1753-1765] provide a small-time asymptotics for the mass at zero under the uncorrelated stochastic-alpha-beta-rho (SABR) model by approximating the integrated variance with a moment-matched lognormal distribution. We improve the accuracy of the numerical integration by using the Gauss--Hermite quadrature. We further obtain the option price by integrating the constant elasticity of variance (CEV) option prices in the same manner without resorting to the small-strike volatility smile asymptotics of De Marco et al. [SIAM J. Financ. Math., 2017, 8(1), 709-737]. For the uncorrelated SABR model, the new option pricing method is accurate and arbitrage-free across all strike prices.

Date: 2020-11, Revised 2021-04
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Published in Quantitative Finance, 21:1083, 2021

Downloads: (external link)
http://arxiv.org/pdf/2011.00557 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:2011.00557

Access Statistics for this paper

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