Financial Applications of Bivariate Markov Processes | Zendy

Sergio Ortobelli Lozza | Zendy; Enrico Angelelli | Zendy; Annamaria Bianchi | Zendy

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Financial Applications of Bivariate Markov Processes

Author(s) -

Sergio Ortobelli Lozza,

Enrico Angelelli,

Annamaria Bianchi

Publication year - 2011

Publication title -

mathematical problems in engineering

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.262

H-Index - 62

eISSN - 1026-7077

pISSN - 1024-123X

DOI - 10.1155/2011/347604

Subject(s) - bivariate analysis , markov chain , portfolio , markov process , joint probability distribution , computer science , econometrics , project portfolio management , markov model , process (computing) , mathematical optimization , finance , mathematics , economics , statistics , project management , machine learning , operating system , management

This paper describes a methodology to approximate a bivariateMarkov process by means of a proper Markov chain and presents possible financialapplications in portfolio theory, option pricing and risk management.In particular, we first show how to model the joint distribution between marketstochastic bounds and future wealth and propose an application to large-scaleportfolio problems. Secondly, we examine an application to VaR estimation. Finally,we propose a methodology to price Asian options using a bivariate Markovprocess

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