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A Multivariate Jump-Driven Financial Asset Model

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  • Elisa Luciano
  • Wim Schoutens

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.

Suggested Citation

  • Elisa Luciano & Wim Schoutens, 2006. "A Multivariate Jump-Driven Financial Asset Model," Carlo Alberto Notebooks 29, Collegio Carlo Alberto.
    • Handle: RePEc:cca:wpaper:29
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    References listed on IDEAS

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    More about this item

    Keywords

    Lévy processes; multivariate asset modelling; copulas; risk neutral dependence.;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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