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Multivariate Factor-Based Processes With Sato Margins

Author

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  • MARINA MARENA

    (Department of Economics and Statistics, Universitá di Torino, c.so Unione Sovietica 218bis, Torino, Italia)

  • ANDREA ROMEO

    (Department of Economics and Statistics, Universitá di Torino, c.so Unione Sovietica 218bis, Torino, Italia)

  • PATRIZIA SEMERARO

    (Department of Mathematical Science, Politecnico di Torino, c.so Duca Degli Abruzzi, 24, Torino, Italia)

Abstract

We introduce a class of multivariate factor-based processes with the dependence structure of Lévy ρα-models and Sato marginal distributions. We focus on variance gamma and normal inverse Gaussian marginal specifications for their analytical tractability and fit properties. We explore if Sato models, whose margins incorporate more realistic moments term structures, preserve the correlation flexibility in fitting option data. Since ρα-models incorporate nonlinear dependence, we also investigate the impact of Sato margins on nonlinear dependence and its evolution over time. Further, the relevance of nonlinear dependence in multivariate derivative pricing is examined.

Suggested Citation

  • Marina Marena & Andrea Romeo & Patrizia Semeraro, 2018. "Multivariate Factor-Based Processes With Sato Margins," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 21(01), pages 1-30, February.
    • Handle: RePEc:wsi:ijtafx:v:21:y:2018:i:01:n:s021902491850005x
    DOI: 10.1142/S021902491850005X
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    References listed on IDEAS

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    6. Marina Marena & Andrea Romeo & Patrizia Semeraro, 2015. "Pricing multivariate barrier reverse convertibles with factor-based subordinators," Carlo Alberto Notebooks 439, Collegio Carlo Alberto.
    7. Elisa Luciano & Marina Marena & Patrizia Semeraro, 2016. "Dependence calibration and portfolio fit with factor-based subordinators," Quantitative Finance, Taylor & Francis Journals, vol. 16(7), pages 1037-1052, July.
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    Cited by:

    1. Amici, Giovanni & Ballotta, Laura & Semeraro, Patrizia, 2025. "Multivariate additive subordination with applications in finance," European Journal of Operational Research, Elsevier, vol. 321(3), pages 1004-1020.
    2. Patrizia Semeraro, 2022. "Multivariate tempered stable additive subordination for financial models," Mathematics and Financial Economics, Springer, volume 16, number 3, September.
    3. Patrizia Semeraro, 2021. "Multivariate tempered stable additive subordination for financial models," Papers 2105.00844, arXiv.org, revised Sep 2021.
    4. Giovanni Amici & Paolo Brandimarte & Francesco Messeri & Patrizia Semeraro, 2023. "Multivariate L\'evy models: calibration and pricing," Papers 2303.13346, arXiv.org, revised Jan 2025.

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