Kennedy, Joanne E.; Pham, Duy - In: Applied Mathematical Finance 21 (2014) 5, pp. 451-481
In this paper, we study the stochastic alpha beta rho with mean reversion model (SABR-MR). We first compare the SABR model with the SABR-MR model in terms of future volatility to point out the fundamental difference in the models' dynamics. We then derive an efficient probabilistic approximation...