L\'evy-Ito Models in Finance

George Bouzianis, Lane P. Hughston, Sebastian Jaimungal and Leandro S\'anchez-Betancourt

Papers from arXiv.org

Abstract: We present an overview of the broad class of financial models in which the prices of assets are L\'evy-Ito processes driven by an $n$-dimensional Brownian motion and an independent Poisson random measure. The Poisson random measure is associated with an $n$-dimensional L\'evy process. Each model consists of a pricing kernel, a money market account, and one or more risky assets. We show how the excess rate of return above the interest rate can be calculated for risky assets in such models, thus showing the relationship between risk and return when asset prices have jumps. The framework is applied to a variety of asset classes, allowing one to construct new models as well as interesting generalizations of familiar models.

Date: 2019-07, Revised 2021-01
References: Add references at CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/1907.08499 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1907.08499

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().