# SABR Question: Why does the market take the beta parameter as a constant?

SABR Question

Why does the market take the $$\beta$$ parameter as a "constant"?

• I see most brokers quoting SABR parameters nowadays.
• I've seen many banks use $$\beta$$=0.5 as a rule.
• I've seen quants select a $$\beta$$ based on best fit to calibration instruments.

What is most correct to the spirit of the paper, and explain any issues to anticipate with IMR/IPV processes.

Generally if you pre-select $$\beta$$, it is from a priori considerations.
• $$\beta = 1$$ corresponds to stochastic lognormal
• $$\beta = 0$$ is stochastic normal
• $$\beta=1/2$$ CIR
In the SABR model, beta is usually calibrated first, followed by the other 3 parameters. Frequently, instead of calibrating beta, it is simply assumed to have $$\beta=1/2$$ (since CIR is widely used). That said, JPY it is also natural to select 0 for JPY due to negative rates.