A Low-bias Simulation Scheme for the Sabr Stochastic Volatility Model

@inproceedings{Chen2011ALS,
  title={A Low-bias Simulation Scheme for the Sabr Stochastic Volatility Model},
  author={Bin Chen and Cornelis W. Oosterlee and Hans v. d. Weide},
  year={2011}
}
The Stochastic Alpha Beta Rho Stochastic Volatility (SABR-SV) model is widely used in the financial industry for the pricing of fixed income instruments. In this paper we develop a low-bias simulation scheme for the SABR-SV model, which deals efficiently with (undesired) possible negative values in the asset price process, the martingale property of the discrete scheme and the discretization bias of commonly used Euler discretization schemes. The proposed algorithm is based the analytic… CONTINUE READING

References

Publications referenced by this paper.
Showing 1-10 of 33 references

Solving SABR in exact form and unifying it with LIBOR market model

O. Islah
Available at SSRN: http://ssrn.com/abstract=1489428 • 2009
View 5 Excerpts
Highly Influenced

Modelling and simulation of stochastic volatility in finance

C. Kahl
Dissertation.com, Boca Raton, Florida • 2007
View 4 Excerpts
Highly Influenced

Managing smile risk

P. Hagan, D. Kumar, A. Lesniewski, D. Woodward
Wilmott Magazine • 2002
View 11 Excerpts
Highly Influenced

Approximations to the non-central Chi-square distribution

M. Sankaran
Biometrika 50 • 1963
View 4 Excerpts
Highly Influenced

Computing the constant elasticity of variance option pricing formula

M. Schroder
Journal of Finance 1(44) • 1989
View 7 Excerpts
Highly Influenced

C

B. Chen
Oosterlee and S. van Weeren, Analytic approximation to constant maturity swap convexity correction in a multi-factor SABR model, International Journal of Theoretical and Applied Finance 13(7) • 2010
View 2 Excerpts
Highly Influenced

Notes on the CEV model

A. Lesniewski
NYU Working Paper • 2009
View 4 Excerpts
Highly Influenced

Similar Papers

Loading similar papers…