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

  title={A Low-bias Simulation Scheme for the Sabr Stochastic Volatility Model},
  author={Bin Chen and Cornelis W. Oosterlee and Hans v. d. Weide},
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


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