A multivariate jump-driven financial asset model

We discuss a Lévy multivariate model for financial assets which incorporates jumps, skewness, kurtosis and stochastic volatility. We use it to describe the behaviour of a series of stocks or indexes and to study a multi-firm, value-based default model. Starting from an independent Brownian world, we introduce jumps and other deviations from normality, including non-Gaussian dependence. We use a stochastic time-change technique and provide the details for a Gamma change. The main feature of the model is the fact that—opposite to other, non-jointly Gaussian settings—its risk-neutral dependence can be calibrated from univariate derivative prices, providing a surprisingly good fit.