The SABR/LIBOR Market Model
Rebonato, Riccardo (Royal Bank of Scotland Group, UK) / McKay, Kenneth (London School of Economics) / White, Richard
The authors take two market standards, the SABR and the LIBOR Market Model (LMM) and produce a coherent synthesis for the pricing of complex interest rate derivatives. The SABR model has become the market standard to recover the price of European options. Its main strengths are its financial justifiability, and its ability to recover the dynamics of the smile evolution when the underlying changes. However, the SABR model treats each European o...