For option pricing models and heavy-tailed distributions, this study proposes a continuous-time stochastic volatility model based on an arithmetic Brownian motion: a one-parameter extension of the normal stochastic alpha-beta-rho (SABR) model. Using two generalized Bougerol's identities in the...

The stochastic-alpha-beta-rho (SABR) model has been widely adopted in options trading. In particular, the normal (β=0) SABR model is a popular model choice for interest rates because it allows negative asset values. The option price and delta under the SABR model are typically obtained via...