Pricing multivariate barrier reverse convertibles with factor-based subordinators

In this paper we study factor-based subordinated Lévy processes in their VG and NIG specications, and focus on their ability to price multivariate exotic derivatives. Different model specications, calibrated to a dataset of multivariate Barrier Reverse Convertibles listed at the Swiss market, show diverse ability in capturing smile patterns and recovering empirical correlations. We show how the range of the correlation spanned by the model is linked to the process marginal distributions. Our analysis nds that there exists a trade-off between marginal and correlation fit. A sensitivity analysis is performed, showing how the product's characteristics and the model's features a affect Multi Barrier Reverse Convertible prices. Market and model prices are analyzed, highlighting and explaining discrepancies.