• Media type: E-Article
  • Title: Probability density of lognormal fractional SABR model
  • Contributor: Akahori, Jiro [Author]; Song, Xiaoming [Author]; Wang, Tai-Ho [Author]
  • Published: 2022
  • Published in: Risks ; 10(2022), 8 vom: Aug., Artikel-ID 156, Seite 1-27
  • Language: English
  • DOI: 10.3390/risks10080156
  • Identifier:
  • Keywords: asymptotic expansion ; lognormal fractional SABR model ; mixed fractional Brownian motion ; Malliavin calculus ; bridge representation ; Aufsatz in Zeitschrift
  • Origination:
  • Footnote:
  • Description: Instantaneous volatility of logarithmic return in the lognormal fractional SABR model is driven by the exponentiation of a correlated fractional Brownian motion. Due to the mixed nature of driving Brownian and fractional Brownian motions, probability density for such a model is less studied in the literature. We show in this paper a bridge representation for the joint density of the lognormal fractional SABR model in a Fourier space. Evaluating the bridge representation along a properly chosen deterministic path yields a small time asymptotic expansion to the leading order for the probability density of the fractional SABR model. A direct generalization of the representation of joint density often leads to a heuristic derivation of the large deviations principle for joint density in a small time. Approximation of implied volatility is readily obtained by applying the Laplace asymptotic formula to the call or put prices and comparing coefficients.
  • Access State: Open Access
  • Rights information: Attribution (CC BY)