A Copula-Based Model for Spatial and Temporal Dependence of Equity Markets

In this contribution we provide a consistent pricing setting for mul- tivariate equity derivatives. Consistently with the prescriptions of the Efficient Market Hypothesis and of the martingale pricing approach, we provide a model in which prices are martingale both with respect to their own filtration and to the enlarged multivariate filtration. We show that if the log-prices follow processes with independent increments and each one of them is not Granger caused by the others, the pricing procedure can be performed by simply: i) generating time series of each asset; ii) linking assets at each time with a prescribed copula function. We provide applications to multivariate digital options and spread options.