In this Cutting Edge research article published in the September 2015 Issue of Risk Magazine, Alexandre Antonov, Michael Konikov, and Michael Spector present a natural generalization of the SABR model to negative rates—which is very important in the current low-interest-rate environment.

The paper derives an exact formula for the option price in the zero-correlation case and an efficient approximation for general correlation. The simplicity of the approximation permits a straightforward implementation. Moreover, the main formulae from the “absorbing” (standard) SABR approximation can be directly reused.

In this paper, the authors study different Monte Carlo schemes and come up with an efficient one. Finally, they have numerically checked the approximation accuracy for option pricing in this study.

This recent development of the free boundary SABR is a natural, convenient and elegant extension of the classical SABR. It has the same number of parameters as the classical SABR (no shift) and is equipped with an efficient and accurate analytical approximation, crucial for fast calibration.

Authors: Alexandre Antonov, Michael Konikov, and Michael Spector

Download Numerix Research Paper

Complete the form below to download this complimentary research paper.

Select Form: 

Form #5: Research

Keep me informed of future research from Numerix:

Sign me up to receive "Derivative Insights & Innovations" monthly newsletter by Numerix:

* Required fields
press release - Feb 28, 2018

Numerix Oneview Named Best Trading and Execution Platform in the Asian Private Banker Technology...


Structured Products & Derivatives Conference 2018

industry conference

CBOE 2018 - 34th Annual Risk Management Conference

white paper

LIBOR: Its Astonishing Ride and How to Plan for Its End

newsletter issue - Feb 7, 2018

Derivative Insights & Innovations - February 2018 Issue

press release - Jan 17, 2018

Numerix Oneview Insurance Named Actuarial Modelling Product of the Year in the Market...

written blog

Transformative Power of Artificial Intelligence

in the news - Jan 9, 2018

Chartis RiskTech 100 2018 | Winners' Review: Numerix

newsletter issue - Jan 11, 2018

Derivative Insights & Innovations - January 2018 Issue

in the news - Dec 21, 2017

CEO Today USA Awards 2017

in the news - Nov 28, 2017

CEO Today | Committed to Thinking outside the Box

written blog

The Dependency Graph Advantage