The paper explores the fit properties of a class of multivariate Lévy processes, which are characterized as time-changed correlated Brownian motions. The time-change has a common and an idiosyncratic component, to re ect the properties of trade, which it represents. The resulting process may provide Variance-Gamma, Normal-Inverse- Gaussian or Generalized-Hyperbolic margins. A non-pairwise calibration to a portfolio of ten US daily stock returns over the period 2009-2013 shows that fit of the Hyperbolic specification is very good, in terms of marginal distributions and overall correlation matrix. It succeeds in explaining the return distribution of both long-only and long- short random portfolios better than competing models do. Their tail behavior is very well captured also by the Variance-Gamma specification.

Dependence Calibration and Portfolio Fit with FactorBased Time Changes

LUCIANO, Elisa;MARENA, Marina;
2013

Abstract

The paper explores the fit properties of a class of multivariate Lévy processes, which are characterized as time-changed correlated Brownian motions. The time-change has a common and an idiosyncratic component, to re ect the properties of trade, which it represents. The resulting process may provide Variance-Gamma, Normal-Inverse- Gaussian or Generalized-Hyperbolic margins. A non-pairwise calibration to a portfolio of ten US daily stock returns over the period 2009-2013 shows that fit of the Hyperbolic specification is very good, in terms of marginal distributions and overall correlation matrix. It succeeds in explaining the return distribution of both long-only and long- short random portfolios better than competing models do. Their tail behavior is very well captured also by the Variance-Gamma specification.
Carlo Alberto Notebooks
Collegio Carlo Alberto
307
1
35
Lévy processes; multivariate subordinators; dependence; correlation; multi- variate asset modelling; multivariate time-changed processes; factor-based time changes
E. Luciano; M. Marena; P. Semeraro
File in questo prodotto:
File Dimensione Formato  
no.307_luc_mar_sem.pdf

non disponibili

Tipo di file: POSTPRINT (VERSIONE FINALE DELL’AUTORE)
Dimensione 2.06 MB
Formato Adobe PDF
2.06 MB Adobe PDF   Visualizza/Apri   Richiedi una copia

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/2318/147217
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus ND
  • ???jsp.display-item.citation.isi??? ND
social impact