In this paper, we propose a new multivariate mean-reverting model incorporating state-of-the art 4/2 stochastic volatility and a convenient principal component stochastic volatility (PCSV) decomposition for the stochastic covariance. We find a quasi closed-form characteristic function and...

Quantitative models are omnipresent –but often controversially discussed– in todays risk management practice. New regulations, innovative financial products, and advances in valuation techniques provide a continuous flow of challenging problems for financial engineers and risk managers...