A1405
Title: Multivariate additive subordination with applications in finance
Authors: Giovanni Amici - Politecnico di Torino (Italy) [presenting]
Laura Ballotta - Bayes Business School (United Kingdom)
Patrizia Semeraro - Politecnico di Torino (Italy)
Abstract: A tractable multivariate pure jump process is introduced in which the trading time is described by an additive subordinator. The multivariate process retains the additivity property and, therefore, is time inhomogeneous, i.e., its increments are independent but non-stationary. The theoretical framework provided for the process performs a sensitivity analysis with respect to the time inhomogeneity parameters and the design of a Monte Carlo scheme to simulate the trajectories of the process. The model is then employed in the context of option pricing in the FX market. The specific features of currency triangles are taken advantage of to extract the joint dynamics of FX log-rates. Extensive tests based on observed market data show that the model outperforms well-established pure jump benchmarks.
