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Just to be clear: By "in practice" I mean what the banks and other financial companies do.

Do financial companies use SABR for pricing equity options?

Consider a stock with price $t$ being: $S_t$. In SABR model we define the stock dynamics will be:

$$dS_t=S_t^{\beta}\sigma_tdW_t$$ and a process for the volatility. I believe it is not a very good practice to assume no drift for a stock. So that is why I have difficulty understanding how people can use SBAR in practice for Equity while it does make more sense to us it in FX for instance..

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    $\begingroup$ Usually SABR is applied to the forward price of the underlying, so there is no drift. $\endgroup$ – Antoine Conze Feb 14 at 14:40
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    $\begingroup$ Will you be so kind to elaborate? $\endgroup$ – Sanjay Feb 15 at 0:16
  • $\begingroup$ Hi. would you clarify what's unclear ? $\endgroup$ – Antoine Conze Feb 15 at 14:11

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