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Kamil90
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Posts: 35
Joined: February 15th, 2012, 2:02 pm

SABR for equity options

June 8th, 2016, 4:03 pm

When I am looking online SABR seems to be very popular with IR models, however, I don't see it mentioned for equity? Is that not good? What are the alternatives people use in equity to model vol? Heston?
Last edited by Kamil90 on June 7th, 2016, 10:00 pm, edited 1 time in total.
 
frolloos
Posts: 752
Joined: September 27th, 2007, 5:29 pm
Location: Netherlands

SABR for equity options

June 8th, 2016, 5:11 pm

Probably because the original SABR does not have mean reversion for the vol. But there are adaptations out there to include mean reversion. AFAIK though, Heston and/or local volatility (where the and means local stoch vol based on heston) is more common for equity.