Artikel
Generalized mean-reverting 4/2 Factor Model
This paper proposes and investigates a multivariate 4/2 Factor Model. The name 4/2 comes from the superposition of a CIR term and a 3/2-model component. Our model goes multidimensional along the lines of a principal component and factor covariance decomposition. We find conditions for well-defined changes of measure and we also find two key characteristic functions in closed-form, which help with pricing and risk measure calculations. In a numerical example, we demonstrate the significant impact of the newly added 3/2 component (parameter b) and the common factor (a), both with respect to changes on the implied volatility surface (up to 100%) and on two risk measures: value at risk and expected shortfall where an increase of up to 29% was detected.
- Language
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Englisch
- Bibliographic citation
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Journal: Journal of Risk and Financial Management ; ISSN: 1911-8074 ; Volume: 12 ; Year: 2019 ; Issue: 4 ; Pages: 121- ; Basel: MDPI
- Classification
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Wirtschaft
- Subject
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risk measures
option pricing
4/2 model
stochastic covariance
- Event
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Geistige Schöpfung
- (who)
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Cheng, Yuyang
Escobar, Marcos
Gong, Zhenxian
- Event
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Veröffentlichung
- (who)
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MDPI
- (where)
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Basel
- (when)
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2019
- DOI
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doi:10.3390/jrfm12040159
- Handle
- Last update
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10.03.2025, 11:44 AM CET
Data provider
This object is provided by:
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ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Artikel
Associated
- Cheng, Yuyang
- Escobar, Marcos
- Gong, Zhenxian
- MDPI
Time of origin
- 2019
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