Wednesday, April 24, 2024 - 12:00 in V10-122
Factor-based subordination for multivariate asset return models
A talk in the Mathematical Finance Seminar series by
Patrizia Semeraro from Polytechnic University of Torino
| Abstract: |
We build a theoretical framework for multivariate time-changed Brownian motions. The change of time is constructed to incorporate both a time transform common to all assets and an idiosyncratic one. We first consider the case in which the change of time is a subordinator.
The resulting processes, named factor-based-models, belong to the Lèvy class and extend some well known subordinated Lèvy processes, as the normal inverse Gaussian process. We then use Sato subordinators to extend time-changed Brownian motions to additive processes with inhomogeneous increments. The construction is designed to obtain a multivariate process with the same unit time distribution as the factor-based-model and with time varying correlations.
We show the importance to model time-inhomogeneity in multi-FX option pricing, by calibrating the NIG specification of factor-based-models on currency triangles. This work is partially joint with Elisa Luciano and partially joint with Giovanni Amici and Laura Ballotta.
Within the CRC this talk is associated to the project(s): C5 |
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