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.

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

CHERUBINI, UMBERTO;GOBBI, FABIO;MULINACCI, SABRINA;ROMAGNOLI, SILVIA
2010

Abstract

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.
Copula Theory and Its Applications, Lecture Notes in Statistics
257
265
U. Cherubini; F. Gobbi; S. Mulinacci; S. Romagnoli
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11585/99889
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