The SABR model is a stochastic volatility model not admitting a closed form solution. Hagan, Kumar, Leniewski and Woodward have given an approximate solution by means of perturbative techniques. A more precise approximation was obtained by Henry-Labord\`ere using the heat kernel expansion method. The latter relies on deep and hard theorems from Riemannian geometry which are almost totally unknown to people working in finance, who however are those primarily interested in these results. The goal of this report is to fill this gap and makes these topics understandable to people with a basic knowledge of calculus and linear algebra.
The SABR model is a stochastic volatility model not admitting a closed form solution. Hagan, Kumar, Leniewski and Woodward have obtained an approximate solution by means of perturbative techniques. A more precise approximation was found by Henry-Labord\`ere with the heat kernel expansion method. The latter relies on deep and hard theorems from Riemannian geometry which are almost totally unknown to the professionals of finance, who however are those primarily interested in these results. The goal of this report is to fill this gap and to make these topics understandable with a basic knowledge of calculus and linear algebra.
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