Multivariate Asset Models Using Levy Processes and Applications
Forthcoming in The European Journal of Finance (2014)
39 Pages Posted: 22 Oct 2010 Last revised: 21 Apr 2015
Date Written: November 1, 2013
Abstract
In this paper we propose a multivariate asset model based on L´evy processes for pricing of products written on more than one underlying asset. Our construction is based on a two factor representation of the dynamics of the asset log-returns. We investigate the properties of the model and introduce a multivariate generalization of some processes which are quite common in financial applications, such as subordinated Brownian motions, jump diffusion processes and time changed Levy processes. Finally, we explore the issue of model calibration for the proposed setting and illustrate its robustness on a number of numerical examples.
Keywords: Jump Diffusion process, Levy processes, model calibration, multinames derivative contracts, subordinated Brownian motions, time changed Levy processes
JEL Classification: G13, G12, C63, D52
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
A Multivariate Jump-Driven Financial Asset Model
By Elisa Luciano and Wim Schoutens
-
By Ernst Eberlein and Dilip B. Madan
-
Extending Time-Changed Lévy Asset Models Through Multivariate Subordinators
By Elisa Luciano and Patrizia Semeraro
-
By Jan Beirlant, Wim Schoutens, ...
-
Non Gaussian Models of Dependence in Returns
By Ajay Khanna and Dilip B. Madan
-
A Multivariate Time-Changed LéVy Model for Financial Applications
-
Let's Jump Together - Pricing of Credit Derivatives: From Index Swaptions to CPPIs
By Joao Garcia, Serge Goossens, ...
-
A Multivariate Pure-Jump Model with Multi-Factorial Dependence Structure