English, Article edition: A multivariate Levy process model with linear correlation Reiichiro Kawai

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Physical Description
  • article
Language
  • English

Edition details

Title
  • A multivariate Levy process model with linear correlation
Author
  • Reiichiro Kawai
Physical Description
  • article
Notes
  • 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.
  • Volatility modelling, Stochastic jumps, Non-Gaussian option pricing, Non-Gaussian distributions, Multivariate volatility, Model calibration, Mathematical finance, Implementation of pricing,
  • RePEc:taf:quantf:v:9:y:2009:i:5:p:597-606
Language
  • English
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