City Research Online

Abstract

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

Publication Type:	Article
Additional Information:	This is an Accepted Manuscript of an article published in The European Journal of Finance on 10 April 2014, available online: http://www.tandfonline.com/10.1080/1351847X.2013.870917. Article in press.
Publisher Keywords:	Jump Diffusion process, Levy processes, model calibration, multinames derivative contracts, time changed Brownian motions
Subjects:	H Social Sciences > HG Finance
Departments:	Bayes Business School > Finance
SWORD Depositor:	Symplectic Administrator

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