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A multivariate Levy process model with linear correlation.
- Source :
-
Quantitative Finance . Aug2009, Vol. 9 Issue 5, p597-606. 10p. 5 Charts, 2 Graphs. - Publication Year :
- 2009
-
Abstract
- In this paper, we develop a multivariate risk-neutral Levy process model and discuss its applicability in the context of the volatility smile of multiple assets. Our formulation is based upon a linear combination of independent univariate Levy processes and can easily be calibrated to a set of one-dimensional marginal distributions and a given linear correlation matrix. We derive conditions for our formulation and the associated calibration procedure to be well-defined and provide some examples associated with particular Levy processes permitting a closed-form characteristic function. Numerical results of the option premiums on three currencies are presented to illustrate the effectiveness of our formulation with different linear correlation structures. [ABSTRACT FROM AUTHOR]
Details
- Language :
- English
- ISSN :
- 14697688
- Volume :
- 9
- Issue :
- 5
- Database :
- Academic Search Index
- Journal :
- Quantitative Finance
- Publication Type :
- Academic Journal
- Accession number :
- 41880575
- Full Text :
- https://doi.org/10.1080/14697680902744729