stability with relatively large values of bond tenor even when inputting both relatively large values of the annualised short … short-rate standard deviation, σ, and bond tenor, T, such that σ 2T 3 > 3.6 and σ 2T 3 > 17.1 respectively, given sensible … bond market tolerance requirements for the model’s accuracy. In what follows, we show how the practitioner must modify …

each trading day. In-sample and out-of-sample tests show that in addition to having stochastic volatility for the forward … volatility, although recalibrating both further improves pricing performance. The fully stochastic version of the SABR model … exhibits excellent pricing accuracy and more importantly, captures the dynamics of the volatility smile over time very well …