SABR Model

The SABR (Stochastic Alpha, Beta, Rho) model is used in finance to better estimate the prices of options on interest rates or other assets. It captures how volatility (the variability of asset prices) changes over time and with different price levels. Unlike simpler models, SABR considers that volatility itself can fluctuate randomly, making it more accurate for complex market conditions. This helps traders and investors assess risks and set prices more precisely, especially for options where traditional models might not fully capture market behaviors.