The Arbitrage-Free Multivariate Mixture Dynamics Model: Consistent Single-Assets and Index Volatility Smiles
The Arbitrage-Free Multivariate Mixture Dynamics Model: Consistent Single-Assets and Index Volatility Smiles
We introduce a multivariate diffusion model that is able to price derivative securities featuring multiple underlying assets. Each asset volatility smile is modeled according to a density-mixture dynamical model while the same property holds for the multivariate process of all assets, whose density is a mixture of multivariate basic densities. …