Towards a $$\Delta $$Δ-Gamma Sato multivariate model
Lynn Boen () and
Florence Guillaume ()
Additional contact information
Lynn Boen: University of Antwerp
Florence Guillaume: University of Antwerp
Review of Derivatives Research, 2020, vol. 23, issue 1, No 1, 39 pages
Abstract The increased trading in multi-name financial products has paved the way for the use of multivariate models that are at once computationally tractable and flexible enough to mimic the stylized facts of asset log-returns and of their dependence structure. In this paper we propose a new multivariate Lévy model, the so-called $$\varDelta $$Δ-Gamma model, where the log-price gains and losses are modeled by separate multivariate Gamma processes, each containing a common and an idiosyncratic component. Furthermore, we extend this multivariate model to the Sato setting, allowing for a moment term structure that is more in line with empirical evidence. We calibrate the two models on single-name option price surfaces and market implied correlations and we show how the $$\varDelta $$Δ-Gamma Sato model outperforms its Lévy counterpart, especially during periods of market turmoil. The numerical study also reveals the advantages of these new types of multivariate models, compared to a multivariate VG model.
Keywords: Multi-name option pricing; Multivariate Lévy models; Multivariate models with Sato marginals; Difference of Gamma processes; Self-similar processes; Calibration (search for similar items in EconPapers)
JEL-codes: G12 G13 C51 C52 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
http://link.springer.com/10.1007/s11147-019-09155-y Abstract (text/html)
Access to full text is restricted to subscribers.
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:kap:revdev:v:23:y:2020:i:1:d:10.1007_s11147-019-09155-y
Ordering information: This journal article can be ordered from
http://www.springer. ... 29/journal/11147/PS2
Access Statistics for this article
Review of Derivatives Research is currently edited by Gurdip Bakshi and Dilip Madan
More articles in Review of Derivatives Research from Springer
Bibliographic data for series maintained by Sonal Shukla ().