Carmelo Vaccaro. Heat kernel methods in finance: the SABR model


Social Sciences / Economics / Financial

Submitted on: Jul 06, 2012, 02:46:04

Description: The SABR model is a stochastic volatility model not admitting a closed form solution. Hagan, Kumar, Leniewski and Woodward have obtained an approximate solution by means of perturbative techniques. A more precise approximation was found by Henry-Labordere with the heat kernel expansion method. The latter relies on deep and hard theorems from Riemannian geometry which are almost totally unknown to the professionals of finance, who however are those primarily interested in these results. The goal of this report is to fill this gap and to make these topics understandable with a basic knowledge of calculus and linear algebra.

The abstract of this article has been published in the "Intellectual Archive Bulletin" , July 2012, ISSN 1929-1329.

The Library and Archives Canada reference page: collectionscanada.gc.ca/ourl/res.php?url_ver=Z39.88......

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Carmelo_Vaccaro__Heat_kernel_methods_in_finance.pdf



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