The Stochastic Alpha Beta Rho (SABR) model is a stochastic volatility model for forward prices, commonly used in the modelling of interest rate derivatives. The alpha, beta and rho in the name are parameters to be calibrated.

The SABR model of Hagan is described by the following system of stochastic differential equations

$$\begin{align} \mathrm{d}f_t&=\alpha_tf_t^\beta\mathrm{d}W_t^1 \\ \mathrm{d}\alpha_t&=v\,\alpha_t\mathrm{d}W_t^2 \\ \mathrm{d}\langle W^1,W^2\rangle_t&=\rho\mathrm{d}t \\ \end{align}$$

In these equations, $f_t$ is the forward rate, $\alpha$ is the initial variance, $\beta$ is the exponent for the forward rate (describes the sensitivity of forward price movements to the spot price); $v$ is the volatility of variance; while $\rho$ is the correlation.

Source: Risk Magazine