SabrHagan2002: Calculate the equivalent BS volatility (Hagan et al. 2002)...

In FER: Financial Engineering in R

Description

Calculate the equivalent BS volatility (Hagan et al. 2002) for the Stochatic-Alpha-Beta-Rho (SABR) model

Usage

SabrHagan2002(
  strike = forward,
  spot,
  texp = 1,
  sigma,
  vov = 0,
  rho = 0,
  beta = 1,
  intr = 0,
  divr = 0,
  cp = NULL,
  forward = spot * exp(-divr * texp)/df,
  df = exp(-intr * texp)
)

Arguments

strike	(vector of) strike price
spot	(vector of) spot price
texp	(vector of) time to expiry
sigma	(vector of) volatility
vov	(vector of) vol-of-vol
rho	(vector of) correlation
beta	(vector of) beta
intr	interest rate (domestic interest rate)
divr	convenience rate (foreign interest rate)
cp	call/put sign. NULL for BS vol (default), 1 for call price, -1 for put price.
forward	forward price. If given, forward overrides spot
df	discount factor. If given, df overrides intr

Value

BS volatility or option price based on cp

References

Hagan, P. S., Kumar, D., Lesniewski, A. S., & Woodward, D. E. (2002). Managing Smile Risk. Wilmott, September, 84-108.

Examples

sigma <- 0.25
vov <- 0.3
rho <- -0.8
beta <- 0.3
texp <- 10
strike <- seq(0.1, 2, 0.1)
FER::SabrHagan2002(strike, 1, texp, sigma, vov, rho, beta)
FER::SabrHagan2002(strike, 1, texp, sigma, vov, rho, beta, cp=1)

FER documentation built on March 5, 2021, 5:06 p.m.