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Multivariate Asset Models Using Levy Processes and Applications

Forthcoming in The European Journal of Finance (2014)

Paris December 2010 Finance Meeting EUROFIDAI - AFFI

39 Pages Posted: 22 Oct 2010 Last revised: 21 Apr 2015

Laura Ballotta

Sir John Cass Business School - City, University of London

Efrem Bonfiglioli

City University London - Sir John Cass Business School

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

Ballotta, Laura and Bonfiglioli, Efrem, Multivariate Asset Models Using Levy Processes and Applications (November 1, 2013). Forthcoming in The European Journal of Finance (2014); Paris December 2010 Finance Meeting EUROFIDAI - AFFI . Available at SSRN: https://ssrn.com/abstract=1695527

Laura Ballotta (Contact Author)

Sir John Cass Business School - City, University of London ( email )

Faculty of Finance
106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

HOME PAGE: http://www.city.ac.uk/people/academics/laura-ballotta

Efrem Bonfiglioli

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

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