Dependence Calibration and Portfolio Fit with FactorBased Time Changes
The paper explores the fit properties of a class of multivariate Lévy processes, which are characterized as time-changed correlated Brownian motions. The time-change has a common and an idiosyncratic component, to re ect the properties of trade, which it represents. The resulting process may provide Variance-Gamma, Normal-Inverse- Gaussian or Generalized-Hyperbolic margins. A non-pairwise calibration to a portfolio of ten US daily stock returns over the period 2009-2013 shows that fit of the Hyperbolic specification is very good, in terms of marginal distributions and overall correlation matrix. It succeeds in explaining the return distribution of both long-only and long- short random portfolios better than competing models do. Their tail behavior is well captured also by the Variance-Gamma specification.
|Date of creation:||2013|
|Date of revision:||2014|
|Contact details of provider:|| Postal: |
Web page: http://www.carloalberto.org/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Patrizia Semeraro, 2008. "A Multivariate Variance Gamma Model For Financial Applications," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 11(01), pages 1-18.
- Elisa Luciano & Patrizia Semeraro, 2010.
"A Generalized Normal Mean-Variance Mixture For Return Processes In Finance,"
International Journal of Theoretical and Applied Finance (IJTAF),
World Scientific Publishing Co. Pte. Ltd., vol. 13(03), pages 415-440.
- Elisa Luciano & Patrizia Semeraro, 2008. "A Generalized Normal Mean Variance Mixture for Return Processes in Finance," Carlo Alberto Notebooks 97, Collegio Carlo Alberto, revised 2009.
- Eberlein, Ernst & Keller, Ulrich & Prause, Karsten, 1998. "New Insights into Smile, Mispricing, and Value at Risk: The Hyperbolic Model," The Journal of Business, University of Chicago Press, vol. 71(3), pages 371-405, July.
- Elisa Luciano & Wim Schoutens, 2006.
"A Multivariate Jump-Driven Financial Asset Model,"
Carlo Alberto Notebooks
29, Collegio Carlo Alberto.
- Harris, Lawrence, 1986. "Cross-Security Tests of the Mixture of Distributions Hypothesis," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 21(01), pages 39-46, March.
- Roberto Marf�, 2012. "A generalized variance gamma process for financial applications," Quantitative Finance, Taylor & Francis Journals, vol. 12(1), pages 75-87, June.
- Martin Wallmeier & Martin Diethelm, 2012. "Multivariate downside risk: Normal versus Variance Gamma," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 32(5), pages 431-458, 05.
When requesting a correction, please mention this item's handle: RePEc:cca:wpaper:307. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Giovanni Bert)
If references are entirely missing, you can add them using this form.