Financial Models with Levy Processes and Volatility Clustering

Financial Models with Levy Processes and Volatility Clustering

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An in-depth guide to understanding probability distributions and financial modeling for the purposes of investment management In Financial Models with LAcvy Processes and Volatility Clustering, the expert author team provides a framework to model the behavior of stock returns in both a univariate and a multivariate setting, providing you with practical applications to option pricing and portfolio management. They also explain the reasons for working with non-normal distribution in financial modeling and the best methodologies for employing it. The book's framework includes the basics of probability distributions and explains the alpha-stable distribution and the tempered stable distribution. The authors also explore discrete time option pricing models, beginning with the classical normal model with volatility clustering to more recent models that consider both volatility clustering and heavy tails. Reviews the basics of probability distributions Analyzes a continuous time option pricing model (the so-called exponential LAcvy model) Defines a discrete time model with volatility clustering and how to price options using Monte Carlo methods Studies two multivariate settings that are suitable to explain joint extreme events Financial Models with LAcvy Processes and Volatility Clustering is a thorough guide to classical probability distribution methods and brand new methodologies for financial modeling.The generalization to the NGARCH(p, q) case or different GARCH variants is straightforward. 11. ... We considerthe samerandom variableunder both market andrisk neutral, notingthatitisevenpossible to usearandom variable under the market measure andadifferent oneunder the ... The authors are grateful to Christian Menn of DZ Bank AG for providing the MATLAB code for the STS distribution. 20.

Title:Financial Models with Levy Processes and Volatility Clustering
Author: Svetlozar T. Rachev, Young Shin Kim, Michele L. Bianchi, Frank J. Fabozzi
Publisher:John Wiley & Sons - 2011-02-08

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