We propose a multiscale SABR model to describe the dynamics of forward prices/rates. This model consists of a system of three stochastic differential equations whose independent variable is time and whose dependent variables are the forward prices/rates and two stochastic volatilities varying on two different time scales.
Normal and lognormal SABR and multi-scale SABR Models: Option Pricing and Calibration
MARIANI, FRANCESCA;
2012-01-01
Abstract
We propose a multiscale SABR model to describe the dynamics of forward prices/rates. This model consists of a system of three stochastic differential equations whose independent variable is time and whose dependent variables are the forward prices/rates and two stochastic volatilities varying on two different time scales.
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