ZABR (by Jesper Andreasen and Huge) vs SABR smile


Member Andreasen.pdf

Once again I would like to ask about the ZABR model, I have implemented this is R but I am not sure if this is done correctly.

I have a question which confuses me a lot: IF gamma = 1 and alpha, beta , rho and epsilon ( epsilon is the vol-vol parameter ) is fixed! Will SABR and ZABR then produce the same smile when they both use the SAME alpha, beta , rho and epsilon parameters?


New Member
For avoidance of doubt I forwarded your question to Brian Huge. His answer is as I expected:

If gamma = 1 then the vol of vol function is the same as in SABR, so in case you use the same approximation or pricing method it will be the same.

Hope this helps.