Mean-Reverting 4/2 Principal Components Model. Financial Applications

Mean-Reverting 4/2 Principal Components Model. Financial Applications

In this paper, we propose a new multivariate mean-reverting model incorporating state-of-the art 4/2 stochastic volatility and a convenient principal component stochastic volatility (PCSV) decomposition for the stochastic covariance. We find a quasi closed-form characteristic function and propose an...

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Bibliographic Details
Main Authors: Marcos Escobar-Anel, Zhenxian Gong
Format: Article
Language:English
Published: MDPI AG 2021-07-01
Series:Risks
Subjects:
principal component analysis
4/2 stochastic volatility model
moment-generating function
risk management calculations
Online Access:https://www.mdpi.com/2227-9091/9/8/141

Internet

https://www.mdpi.com/2227-9091/9/8/141

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