Weak subordination of multivariate Lévy processes and variance generalised gamma convolutions

DOI10.3150/17-BEJ1004MaRDI QIDQ1715552zbMATH OpenOpenAlexFDO

Authors Boris Buchmann, Kevin W. Lu, Dilip B. Madan

Publication date 28 January 2019

Published in Bernoulli (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1609.04481, https://projecteuclid.org/euclid.bj/1544605262

zbMATH Keywords

Brownian motiongamma processgeneralised gamma convolutionsLévy processmarked point processsubordinationThorin measurevariance gammavariance-alpha-gamma

Mathematics Subject Classification ID

Probability distributions: general theory (60E05) Infinitely divisible distributions; stable distributions (60E07) Processes with independent increments; Lévy processes (60G51)

Abstract: Subordinating a multivariate L'evy process, the subordinate, with a univariate subordinator gives rise to a pathwise construction of a new L'evy process, provided the subordinator and the subordinate are independent processes. The variance-gamma model in finance was generated accordingly from a Brownian motion and a gamma process. Alternatively, multivariate subordination can be used to create L'evy processes, but this requires the subordinate to have independent components. In this paper, we show that there exists another operation acting on pairs $(T,X)$ of L'evy processes which creates a L'evy process $XodotT$. Here, $T$ is a subordinator, but $X$ is an arbitrary L'evy process with possibly dependent components. We show that this method is an extension of both univariate and multivariate subordination and provide two applications. We illustrate our methods giving a weak formulation of the variance-$alpha$-gamma process that exhibits a wider range of dependence than using traditional subordination. Also, the variance generalised gamma convolution class of L'evy processes formed by subordinating Brownian motion with Thorin subordinators is further extended using weak subordination.

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Cited in

(24)

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• Calibration for multivariate Lévy-driven Ornstein-Uhlenbeck processes with applications to weak subordination
• Dimension-wise scaled normal mixtures with application to finance and biometry
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• Correlated squared returns
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• On some distributional properties of subordinated Gaussian random fields
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