Journal
BERNOULLI
Volume 25, Issue 1, Pages 742-770Publisher
INT STATISTICAL INST
DOI: 10.3150/17-BEJ1004
Keywords
Brownian motion; gamma process; generalised gamma convolutions; Levy process; marked point process; subordination; Thorin measure; variance gamma; variance-alpha-gamma
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Funding
- ARC [DP160104737]
- Australian Government Research Training Program Scholarship
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Subordinating a multivariate Levy process, the subordinate, with a univariate subordinator gives rise to a pathwise construction of a new Levy 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 Levy 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 Levy processes which creates a Levy process X circle dot T. Here, T is a subordinator, but X is an arbitrary Levy 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 Levy processes formed by subordinating Brownian motion with Thorin subordinators is further extended using weak subordination.
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