A class of multivariate marked Poisson processes to model asset returns
نویسندگان
چکیده
This paper constructs a class of multivariate Gaussian marked Poisson processes to model asset returns. The model proposed accommodates the cross section properties of trades, allows for returns to be correlated conditional on trading activity, and preserves the economic intuition of normality of returns conditional on trading activity. We prove that the new class of processes are in law subordinated Brownian motions and we provide their characteristic function and correlation matrix in closed form. As a first application we specify a process of variance gamma type and show that, under suitable conditions, we find as subcases some of the well known multivariate variance gamma processes recently introduced in the financial literature. Journal of Economic Literature Classification: G12, G13
منابع مشابه
Studying the Expected Returns Based on Carhart Model Com-pared to CAPM Model and Implicit Capital Cost Model Based on Cash and Capital Flow of Growth and Value stocks
The purpose of this study was to examine the expected returns of Carhart model compared to the capital asset pricing model and the implicit capital cost model based on cash and capital returns of growth and value stocks. The statistical population consisted of the companies listed in Tehran Stock Exchange and the time domain is between 2007 and 2016. By choosing Cochran sampling, 126 companies ...
متن کاملAnna Pajor
Multivariate models of asset returns are very important in financial applications. Asset allocation, risk assessment and construction of an optimal portfolio require estimates of the covariance matrix between the returns of assets (see e.g. Aguilar and West (2000), Pajor (2005a, 2005b)). Similarly, hedges require a covariance matrix of all the assets in the hedge. There are two main types of vo...
متن کاملCAPM and option pricing with elliptically contoured distributions
This paper offers an alternative proof of the Capital Asset Pricing Model (CAPM) when asset returns follow a multivariate elliptical distribution. Empirical studies continue to demonstrate the inappropriateness of the normality assumption for modelling asset returns. The class of elliptically contoured distributions, which includes the more familiar Normal distribution, provides flexibility in ...
متن کاملCo-Volatility and Correlation Clustering : A Multivariate Correlated ARCH Framework
We present a new, full multivariate framework for modelling the evolution of conditional correlation between financial asset returns. Our approach assumes that a vector of asset returns is shocked by a vector innovation process the covariance matrix of which is timedependent. We then employ an appropriate Cholesky decomposition of the asset covariance matrix which, when transformed using a Sphe...
متن کاملModelling dynamic portfolio risk using risk drivers of elliptical processes
The situation of a limited availability of historical data is frequently encountered in portfolio risk estimation, especially in credit risk estimation. This makes it, for example, difficult to find temporal structures with statistical significance in the data on the single asset level. By contrast, there is often a broader availability of cross-sectional data, i.e., a large number of assets in...
متن کامل