Modern SABR Analytics: Formulas and Insights for Quants, Former Physicists and Mathematicians

Description

Focusing on recent advances in option pricing under the SABR model, this book shows how to price options under this model in an arbitrage-free, theoretically consistent manner. It extends SABR to a negative rates environment, and shows how to generalize it to a similar model with additional degrees of freedom, allowing simultaneous model calibration to swaptions and CMSs. Since the SABR model is used on practically every trading floor to construct interest rate options volatility cubes in an arbitrage-free manner, a careful treatment of it is extremely important. The book will be of interest to experienced industry practitioners, as well as to students and professors in academia. Aimed mainly at financial industry practitioners (for example quants and former physicists) this book will also be interesting to mathematicians who seek intuition in the mathematical finance. Front Matter ....Pages i-ix Introduction (Alexandre Antonov, Michael Konikov, Michael Spector)....Pages 1-15 Exact Solutions to CEV Model with Stochastic Volatility (Alexandre Antonov, Michael Konikov, Michael Spector)....Pages 17-39 Classic SABR Model: Exactly Solvable Cases (Alexandre Antonov, Michael Konikov, Michael Spector)....Pages 41-86 Classic SABR Model: Heat Kernel Expansion and Projection on Solvable Models (Alexandre Antonov, Michael Konikov, Michael Spector)....Pages 87-99 Extending SABR Model to Negative Rates (Alexandre Antonov, Michael Konikov, Michael Spector)....Pages 101-121 Conclusion (Alexandre Antonov, Michael Konikov, Michael Spector)....Pages 123-124 Back Matter ....Pages 125-127