Pricing of discount bonds with a Markov switching regime (Q481375)
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scientific article; zbMATH DE number 6380102
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| English | Pricing of discount bonds with a Markov switching regime |
scientific article; zbMATH DE number 6380102 |
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Pricing of discount bonds with a Markov switching regime (English)
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12 December 2014
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The authors obtain the price of discount bonds when the mean-reverting level of the CIR-type short rate follows a Markov chain. The pricing formula includes a solution of a simple linear matrix ODE, which can be solved numerically. The model presented in the paper can capture economic cycles observed in the economy, and the methodology is applicable to the pricing of CDS and other derivatives.
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bond pricing
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term structure
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Markov switching regime
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CIR model
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stochastic flow
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0.9107276
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0.8922482
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0.8861259
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0.8822184
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0.87901384
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