Extending Time-Changed Lévy Asset Models Through Multivariate Subordinators
The traditional multivariate Lévy process constructed by subordinating a Brownian motion through a univariate subordinator presents a number of drawbacks, including the lack of independence and a limited range of dependence. In order to face these, we investigate multivariate subordination, with a common and an idiosyncratic component. We introduce generalizations of some well known univariate Lévy processes for financial applications: the multivariate compound Poisson, NIG, Variance Gamma and CGMY. In all these cases the extension is parsimonious, in that one additional parameter only is needed. We characterize first the subordinator, then the time changed processes via their Lévy measure and characteristic exponent. We further study the subordinator association, as well as the subordinated processes linear and non linear dependence. We show that the processes generated with the proposed time change can include independence and that they span the whole range of linear dependence. We provide some examples of simulated trajectories,scatter plots and both linear and non linear dependence measures. The input data for these simulations are calibrated values for major stock indices.
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- Elisa Luciano & Wim Schoutens, 2006.
"A multivariate jump-driven financial asset model,"
Taylor & Francis Journals, vol. 6(5), pages 385-402.
- Elisa Luciano & Wim Schoutens, 2005. "A Multivariate Jump-Driven Financial Asset Model," ICER Working Papers - Applied Mathematics Series 6-2005, ICER - International Centre for Economic Research.
- Elisa Luciano & Wim Schoutens, 2006. "A Multivariate Jump-Driven Financial Asset Model," Carlo Alberto Notebooks 29, Collegio Carlo Alberto.
- 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.
- Peter Carr & Helyette Geman, 2002. "The Fine Structure of Asset Returns: An Empirical Investigation," The Journal of Business, University of Chicago Press, vol. 75(2), pages 305-332, April. Full references (including those not matched with items on IDEAS)
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