Are you tired of relying on the outdated Black Scholes model for risk management? Looking for a more innovative and accurate alternative? Look no further, because SABR for risk management which will revolutionize you trade.
SABR (Stochastic Alpha Beta Rho) is a cutting-edge model that offers a more flexible and robust approach to pricing and risk management. Unlike Black Scholes, SABR takes into account the volatility skew and smile, providing a more accurate representation of market dynamics. This means you can make more informed decifor risk management sions and better protect your portfolio from unexpected risks.
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quant.stackexchange.com/questions/78830/why-are-black-scholes-derived-greeks-used-for-risk-management-when-alternatives
The article you linked discusses why Black-Scholes Greeks are still used in risk management, even though there are more modern models available. Here’s a summary of the reasons:
Black-Scholes is a simple and well-understood model, which makes it easy to calculate Greeks.
Greeks are still a useful tool for risk management, even if they are not perfect.
SABR (Stochastic Alpha Beta Rho) is a more recent and complex model that can address some of the shortcomings of Black-Scholes. Here’s why SABR is used for risk management:
It can better capture the volatility smile, which is a common feature of option prices. The volatility smile refers to the fact that implied volatility is usually higher for out-of-the-money options than for at-the-money options.
It provides a closed-form formula for implied volatility, which means that it can be used to quickly and easily price options.
Overall, SABR is a more accurate and flexible model than Black-Scholes, but it is also more complex. Black-Scholes is still widely used because of its simplicity.