The equivalent constantelasticityofvariance (CEV) volatility of the stochasticalphabetarho (SABR) model
Abstract
This study presents new analytic approximations of the stochasticalphabetarho (SABR) model. Unlike existing studies that focus on the equivalent BlackScholes (BS) volatility, we instead derive the equivalent volatility under the constantelasticityofvariance (CEV) model, which is the limit of the SABR model when the volatility of volatility approaches 0. Numerical examples demonstrate the accuracy of the CEV volatility approximation for a wide range of parameters. Moreover, in our approach, arbitrage occurs at a lower strike price than in existing BSbased approximations.
 Publication:

arXiv eprints
 Pub Date:
 November 2019
 arXiv:
 arXiv:1911.13123
 Bibcode:
 2019arXiv191113123C
 Keywords:

 Quantitative Finance  Mathematical Finance;
 Quantitative Finance  Pricing of Securities
 EPrint:
 The title was modified