… In this note we describe how to obtain reasonable Vegas for European securities priced off a
single maturity SABR model calibrated to market data. We first introduce our notations and state
what our hedging problem is. We then start by recalling the standard Jacobian methodology
when the number of … Here we assume that the calibrated SABR model implies a true
probability distribution so that at least we guarantee the strict positivity of φ . We wish to know
the sensitivities of this security wrt the market volatilities. That means we are looking for a vector …

We develop a new methodology for computing smile sensitivities (Vegas) for European
securities priced under the SABR model when the latter is calibrated to more market
volatilities than the number of available model parameters. In this situation the hedging
portfolio is non unique and how to obtain Vegas that satisfy a trader's intuition is not
straightforward. The methodology can be easily generalized to all single maturity
underparameterized models and to barrier options priced under an underparameterized …