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Calibrating and completing the volatility cube in the SABR Model

  • This report describes the calibration and completion of the volatility cube in the SABR model. The description is based on a project done for Assenagon GmbH in Munich. However, we use fictitious market data which resembles realistic market data. The problem posed by our client is formulated in section 1. Here we also motivate why this is a relevant problem. The SABR model is briefly reviewed in section 2. Section 3 discusses the calibration and completion of the volatility cube. An example is presented in section 4. We conclude by suggesting possible future research in section 5.

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Author:G. Dimitroff, J. de Kock
URN (permanent link):urn:nbn:de:hbz:386-kluedo-16894
Serie (Series number):Berichte des Fraunhofer-Instituts für Techno- und Wirtschaftsmathematik (ITWM Report) (202)
Document Type:Report
Language of publication:English
Year of Completion:2011
Year of Publication:2011
Publishing Institute:Fraunhofer-Institut für Techno- und Wirtschaftsmathematik
Date of the Publication (Server):2011/03/02
Tag:calls; options; puts; swap; volatility
Faculties / Organisational entities:Fraunhofer (ITWM)
DDC-Cassification:5 Naturwissenschaften und Mathematik / 510 Mathematik
Licence (German):Standard gemäß KLUEDO-Leitlinien vor dem 27.05.2011