Financial Models with Levy Processes and Volatility Clustering

An in-depth guide to understanding probability distributions andfinancial modeling for the purposes of investment management
In Financial Models with Lévy Processes and VolatilityClustering, the expert author team provides a framework tomodel the behavior of stock returns in both a univariate and amultivariate setting, providing you with practical applications tooption pricing and portfolio management. They also explain thereasons for working with non-normal distribution in financialmodeling and the best methodologies for employing it.
The book's framework includes the basics of probabilitydistributions and explains the alpha-stable distribution and thetempered stable distribution. The authors also explore discretetime option pricing models, beginning with the classical normalmodel with volatility clustering to more recent models thatconsider both volatility clustering and heavy tails.
* Reviews the basics of probability distributions
* Analyzes a continuous time option pricing model (the so-calledexponential Lévy model)
* Defines a discrete time model with volatility clustering andhow to price options using Monte Carlo methods
* Studies two multivariate settings that are suitable to explainjoint extreme events
Financial Models with Lévy Processes and VolatilityClustering is a thorough guide to classical probabilitydistribution methods and brand new methodologies for financialmodeling.