A multivariate jump-driven financial asset model

Elisa Luciano and Wim Schoutens

Quantitative Finance, 2006, vol. 6, issue 5, 385-402

Abstract: We discuss a Levy multivariate model for financial assets which incorporates jumps, skewness, kurtosis and stochastic volatility. We use it to describe the behaviour 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.

Keywords: Levy processes; Multivariate asset modelling; Copulas; Risk neutral dependence (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (47)

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Related works:
Working Paper: A Multivariate Jump-Driven Financial Asset Model (2006)
Working Paper: A Multivariate Jump-Driven Financial Asset Model (2005)
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DOI: 10.1080/14697680600806275

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