A rough SABR formula

Masaaki Fukasawa and Jim Gatheral

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Abstract: Following an approach originally suggested by Balland in the context of the SABR model, we derive an ODE that is satisfied by normalized volatility smiles for short maturities under a rough volatility extension of the SABR model that extends also the rough Bergomi model. We solve this ODE numerically and further present a very accurate approximation to the numerical solution that we dub the rough SABR formula.

Date: 2021-05
New Economics Papers: this item is included in nep-ore
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