A Generalized Hyperbolic model for a risky asset with dependence

Richard Finlay and Eugene Seneta

Statistics & Probability Letters, 2012, vol. 82, issue 12, 2164-2169

Abstract: We present a construction of the Generalized Hyperbolic (GH) subordinator model for a risky asset with dependence. The construction of the subordinator (activity time) process is implemented via superpositions of Ornstein–Uhlenbeck type processes driven by Lévy noise. It unifies, on the basis of self-decomposability of the Generalized Inverse Gaussian (GIG) distribution, the construction of the various special cases of the GH subordinator class, such as the Variance Gamma, normal inverse Gaussian, hyperbolic and, especially, t distributions. An option pricing formula for the proposed model is derived.

Keywords: Generalized Hyperbolic; Generalized Inverse Gaussian; Ornstein–Uhlenbeck process; Subordinator model; Long range dependence (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (3)

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DOI: 10.1016/j.spl.2012.07.006

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