On the application of Wishart process to the pricing of equity derivatives: the multi-asset case
| Autor: | Gaetano La Bua, Daniele Marazzina |
|---|---|
| Jazyk: | angličtina |
| Rok vydání: | 2021 |
| Předmět: |
Wishart distribution
Mathematical optimization 050208 finance Stochastic volatility Covariance matrix Computer science Stochastic process Mathematical finance 05 social sciences 01 natural sciences Management Information Systems Heston model 010104 statistics & probability Computer Science::Computational Engineering Finance and Science 0502 economics and business Asset (economics) 0101 mathematics Volatility (finance) Information Systems |
| Popis: | Given the inherent complexity of financial markets, a wide area of research in the field of mathematical finance is devoted to develop accurate models for the pricing of contingent claims. Focusing on the stochastic volatility approach (i.e. we assume to describe asset volatility as an additional stochastic process), it appears desirable to introduce reliable dynamics in order to take into account the presence of several assets involved in the definition of multi-asset payoffs. In this article we deal with the multi asset Wishart Affine Stochastic Correlation model, that makes use of Wishart process to describe the stochastic variance covariance matrix of assets return. The resulting parametrization turns out to be a genuine multi-asset extension of the Heston model: each asset is exactly described by a single instance of the Heston dynamics while the joint behaviour is enriched by cross-assets and cross-variances stochastic correlation, all wrapped in an affine modeling. In this framework, we propose a fast and accurate calibration procedure, and two Monte Carlo simulation schemes. |
| Databáze: | OpenAIRE |
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