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Multivariate Asset Models Using Levy Processes and ApplicationsLaura BallottaCity University London - Sir John Cass Business School Efrem BonfiglioliCity University London - Sir John Cass Business School July 2012 Paris December 2010 Finance Meeting EUROFIDAI - AFFI 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
Number of Pages in PDF File: 35 Keywords: Jump Diffusion process, Levy processes, model calibration, multinames derivative contracts, subordinated Brownian motions, time changed Levy processes JEL Classification: G13, G12, C63, D52 Accepted Paper SeriesDate posted: October 22, 2010 ; Last revised: February 12, 2013Suggested CitationContact Information
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