Abstract
We analyze the valuation of European digital call and put options in the market standard SABR stochastic volatility model. Asymptotic methods developed for the arbitrage-free SABR model are used to obtain explicit, closed-form formulae for the valuation of European digital call and put options under the SABR model. Results derived in this paper have the same order of accuracy as the closed-form SABR formulae, and they exactly satisfy put-call parity for digital options.
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