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A Multivariate Jump-Driven Financial Asset Model
[journal article]
Abstract
We discuss a Lévy multivariate model for financial assets which incorporates jumps, skewness, kurtosis and stochastic volatility. We use it to describe the behavior of a series of stocks or indexes and to study a multi-firm, value-based default model. Starting from an independent Brownian world, we... view more
We discuss a Lévy multivariate model for financial assets which incorporates jumps, skewness, kurtosis and stochastic volatility. We use it to describe the behavior of a series of stocks or indexes and to study a multi-firm, value-based default model. Starting from an independent Brownian world, we introduce jumps and other deviations from normality, including non-Gaussian dependence. We use a stochastic time-change technique and provide the details for a Gamma change. The main feature of the model is the fact that - opposite to other, non jointly Gaussian settings - its risk neutral dependence can be calibrated from univariate derivative prices, providing a surprisingly good fit.... view less
Classification
Economic Statistics, Econometrics, Business Informatics
Basic Research, General Concepts and History of Economics
Method
theory application
Free Keywords
Leacutevy processes; Multivariate asset modelling; Copulas; Risk neutral dependence
Document language
English
Publication Year
2006
Page/Pages
p. 385-402
Journal
Quantitative Finance, 6 (2006) 5
DOI
https://doi.org/10.1080/14697680600806275
Status
Postprint; peer reviewed
Licence
PEER Licence Agreement (applicable only to documents from PEER project)