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Jurassic


Total Posts: 269
Joined: Mar 2018
 
Posted: 2019-08-31 08:23
What is the problem with the SABR model for very short expiries (up to 1 week)? I swear there is a paper written by a guy from Imperial about this (I cant find it).

bullero


Total Posts: 57
Joined: Feb 2018
 
Posted: 2019-08-31 17:12
The standard SABR has pure diffusion dynamics for vol. Based on that my guess would be that it is not enough to fit short maturities. Plain vanilla Heston has similar problems. The poor fit to short maturities is one motivation behind jump-diffusion class of SV models.
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