INFORMATION FLOW DEPENDENCE IN FINANCIAL MARKETS

2020 ◽  
Vol 23 (05) ◽  
pp. 2050029
Author(s):  
MARKUS MICHAELSEN
Keyword(s):  
Financial Markets ◽  
Information Flow ◽  
Asset Returns ◽  
Dependence Structure ◽  
Multivariate Models ◽  
Continuous Time Model ◽  
Time Model ◽  
Simulated Likelihood ◽  
Flow Dependence ◽  
Levy Copula

In response to empirical evidence, we propose a continuous-time model for multivariate asset returns with a two-layered dependence structure. The price process is subject to multivariate information arrivals driving the market activity modeled by nondecreasing pure-jump Lévy processes. A Lévy copula determines the jump dependence and allows for a generic multivariate information flow with a flexible structure. Conditional on the information flow, asset returns are jointly normal. Within this setup, we provide an estimation framework based on maximum simulated likelihood. We apply novel multivariate models to equity data and obtain estimates which meet an economic intuition with respect to the two-layered dependence structure.

scholarly journals Asymptotic synthesis of contingent claims with controlled risk in a sequence of discrete‐time markets

2021 ◽  
Vol 16 (1) ◽  
pp. 25-47
Author(s):  
David M. Kreps ◽  
Walter Schachermayer
Keyword(s):  
Financial Markets ◽  
Discrete Time ◽  
Continuous Time ◽  
Contingent Claims ◽  
Contingent Claim ◽  
Complete Markets ◽  
Continuous Time Model ◽  
Time Model ◽  
Black Scholes ◽  
Discrete Time Models

We examine the connection between discrete‐time models of financial markets and the celebrated Black–Scholes–Merton (BSM) continuous‐time model in which “markets are complete.” Suppose that (a) the probability law of a sequence of discrete‐time models converges to the law of the BSM model and (b) the largest possible one‐period step in the discrete‐time models converges to zero. We prove that, under these assumptions, every bounded and continuous contingent claim can be asymptotically synthesized, controlling for the risks taken in a manner that implies, for instance, that an expected‐utility‐maximizing consumer can asymptotically obtain as much utility in the (possibly incomplete) discrete‐time economies as she can at the continuous‐time limit. Hence, in economically significant ways, many discrete‐time models with frequent trading resemble the complete‐markets model of BSM.

MULTIVARIATE OPTION PRICING MODELS WITH LÉVY AND SATO VG MARGINAL PROCESSES

2018 ◽  
Vol 21 (02) ◽  
pp. 1850007 ◽  
Author(s):  
FLORENCE GUILLAUME
Keyword(s):  
Option Pricing ◽  
Asset Returns ◽  
Dependence Structure ◽  
Financial Instruments ◽  
Multivariate Models ◽  
Pricing Models ◽  
Stylized Facts ◽  
Basket Options ◽  
Spread Options

Pricing and hedging of financial instruments whose payoff depends on the joint realization of several underlyings (basket options, spread options, etc.) require multivariate models that are, at the same time, computationally tractable and flexible enough to accommodate the stylized facts of asset returns and of their dependence structure. Among the most popular models one finds models with VG marginals. The aim of this paper is to compare four multivariate models that are characterized by VG laws at unit time and to assess their performance by considering the flexibility they offer to calibrate the dependence structure for fixed marginals.

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