4
$\begingroup$

What is the relationship between SABR parameters $\sigma, \alpha, \beta, \rho$ and heston parameters $\nu, \kappa, \theta, \xi, \rho$?

How do they influence the smile; skewness, kurtosis, etc? And how are they related to one another, i.e., if I calibrate Heston to SABR for some fixed SABR-parameters, how will the estimated Heston parameters depend on the fixed SABR parameters?

Is there some good literature on the relationship between these two?

Improve this question
$\endgroup$
1
  • $\begingroup$ Add the equations for both stochastic processes to your question please. $\endgroup$
    – will
    Apr 4, 2017 at 20:40

1 Answer 1

Reset to default
1
$\begingroup$

The relationship between the two models is described in details in Implied Volatility Formulas for Heston Models by Hagan et al. In particular an expansion of the implied volatility under the Heston model that matches the one of a SABR model is described. It gives an explicit correspondence between the parameters of each model.

Improve this answer
$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge that you have read and understand our privacy policy and code of conduct.

Not the answer you're looking for? Browse other questions tagged or ask your own question.