کد مقاله | کد نشریه | سال انتشار | مقاله انگلیسی | نسخه تمام متن |
---|---|---|---|---|
5097966 | 1478662 | 2017 | 33 صفحه PDF | دانلود رایگان |
عنوان انگلیسی مقاله ISI
Approximate arbitrage-free option pricing under the SABR model
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موضوعات مرتبط
مهندسی و علوم پایه
ریاضیات
کنترل و بهینه سازی
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چکیده انگلیسی
The stochastic-alpha-beta-rho (SABR) model introduced by Hagan et al. (2002) provides a popular vehicle to model the implied volatilities in the interest rate and foreign exchange markets. To exclude arbitrage opportunities, we need to specify an absorbing boundary at zero for this model, which the existing analytical approaches to pricing derivatives under the SABR model typically ignore. This paper develops closed-form approximations to the prices of vanilla options to incorporate the effect of such a boundary condition. Different from the traditional normal distribution-based approximations, our method stems from an expansion around a one-dimensional Bessel process. Extensive numerical experiments demonstrate its accuracy and efficiency. Furthermore, the explicit expression yielded from our method is appealing from the practical perspective because it can lead to fast calibration, pricing, and hedging.
ناشر
Database: Elsevier - ScienceDirect (ساینس دایرکت)
Journal: Journal of Economic Dynamics and Control - Volume 83, October 2017, Pages 198-214
Journal: Journal of Economic Dynamics and Control - Volume 83, October 2017, Pages 198-214
نویسندگان
Nian Yang, Nan Chen, Yanchu Liu, Xiangwei Wan,