A Multivariate Jump-Driven Financial Asset Model

Elisa Luciano and Wim Schoutens

No 29, Carlo Alberto Notebooks from Collegio Carlo Alberto

Abstract: We discuss a Lévy multivariate model for financial assets which incorporates jumps, skewness, kurtosis and stochastic volatility. We use it to describe the behavior 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 sto- chastic 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: Lévy processes; multivariate asset modelling; copulas; risk neutral dependence. (search for similar items in EconPapers)
JEL-codes: G10 G12 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2006
New Economics Papers: this item is included in nep-cfn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (49)

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Related works:
Journal Article: A multivariate jump-driven financial asset model (2006)
Working Paper: A Multivariate Jump-Driven Financial Asset Model (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:cca:wpaper:29

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