Multivariate asset models using Lévy processes and applications

Laura Ballotta and Efrem Bonfiglioli

The European Journal of Finance, 2016, vol. 22, issue 13, 1320-1350

Abstract: In this paper, we propose a multivariate asset model based on Lévy 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 Lévy processes. Finally, we explore the issue of model calibration for the proposed setting and illustrate its robustness on a number of numerical examples.

Date: 2016
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Citations: View citations in EconPapers (32)

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DOI: 10.1080/1351847X.2013.870917

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