# Proof of non-convergence of the short maturity expansion for the SABR model

The SABR model has been around for a relatively long time and it’s often studied via a small-maturity power series. In fact, all stochastic volatility models have a double power series expansion, for the Black-Scholes implied volatility, in the time-to-maturity T and the log-moneyness. With my coauthor Dan Pirjol, we prove that this series (taking the lognormal SABR model at the at-the-money point) is strictly asymptotic: non-convergent for any T>0. This new research preprint is posted to the arXiv here

Update: The final published version (in the journal Quantitative Finance) has limited (1st 50 clicks) free availability: here

Update 2: Here is a zipped file containing the Mathematica code for most of the figures in the published article: FiguresPaper

For some background, the non-analyticity of the diffusion kernel factor, e^{-d^2/T} at T=0 leads many to believe strict asymptotics in T is the only possibility for option values and related solutions for diffusion models. As we explain in the paper, that’s not correct. For example, a simple case is the at-the-money Black-Scholes option value

V_{BS}(T) = {\text{erf}}(2^{-3/2} \sqrt{T}),

using the error function. After division by a \sqrt{T} , this is an entire function in the complex T-plane.

In principle, similar “nice” behavior could occur in the SABR model. That is, the value function or some simple normalized version of it, could have had a power series that converged for
|T| \lt R in the complex T-plane. Here \{ R: 0 \lt R \le \infty\} denotes a convergence radius. In fact, we prove this doesn’t happen.

## 7 thoughts on “Proof of non-convergence of the short maturity expansion for the SABR model”

1. Mathias says:

Hi Alan,

Really interesting article. Will the Mathematica code be added to the website?

Best,
Mathias

1. Alan says:

Thanks, Mathias. I have no current plans to do that, but what particular code are you interested in? /alan

2. Mathias says:

Thanks for the quick reply Alan. I am interested in the first 3 figures.

/Mathias

1. Alan says:

I am checking with my co-author, Dan Pirjol, who has some of the codes. I will post something for you after I’ve collected it. /alan

1. Mathias says:

Really appreciate it, Alan.

/Mathias

1. Alan says: