Estimation of Multivariate Asset Models with Jumps

33 Pages Posted: 21 Apr 2015 Last revised: 21 Sep 2018

See all articles by Angela Loregian

Angela Loregian

ARPM

Laura Ballotta

Sir John Cass Business School - City, University of London

Gianluca Fusai

Università del Piemonte Orientale Dipartimento di Studi per l'Economia e l'Impresa; Sir John Cass Business School - City, University of London

Marcos Fabricio Perez

Wilfrid Laurier University - School of Business & Economics

Date Written: July 1, 2018

Abstract

We propose a consistent and computationally efficient 2-step methodology for the estimation of multidimensional non-Gaussian asset models built using Lévy processes. The proposed framework allows for dependence between assets and different tail-behaviors and jump structures for each asset. Our procedure can be applied to portfolios with a large number of assets as it is immune to estimation dimensionality problems. Simulations show good finite sample properties and significant efficiency gains. This method is especially relevant for risk management purposes such as, for example, the computation of portfolio Value at Risk and intra-horizon Value at Risk, as we show in detail in an empirical illustration.

Keywords: Multivariate Lévy models, Jump models, Factor models, Principal Components, Maximum Likelihood, EM algorithm, Intra-horizon Value at Risk

JEL Classification: C13, C15, C58, C61, C63, G11, G12

Suggested Citation

Loregian, Angela and Ballotta, Laura and Fusai, Gianluca and Perez, Marcos Fabricio, Estimation of Multivariate Asset Models with Jumps (July 1, 2018). Available at SSRN: https://ssrn.com/abstract=2597049 or http://dx.doi.org/10.2139/ssrn.2597049

Laura Ballotta

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

Gianluca Fusai

Università del Piemonte Orientale Dipartimento di Studi per l'Economia e l'Impresa ( email )

Via Perrone, 18
Novara, 28100
Italy

HOME PAGE: http://https://upobook.uniupo.it/gianluca.fusai

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

106 Bunhill Row
London, EC2Y 8HB
Great Britain

HOME PAGE: http:// www.cass.city.ac.uk/experts/G.Fusai

Marcos Fabricio Perez (Contact Author)

Wilfrid Laurier University - School of Business & Economics ( email )

Waterloo, Ontario N2L 3C5
CANADA
519-884 0710 (Phone)
519-884 0201 (Fax)

HOME PAGE: http://www.public.asu.edu/~mfperez/

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