A semi-Markov modulated interest rate model

DOI10.1016/J.SPL.2013.05.024MaRDI QIDQ2637384zbMATH OpenOpenAlexFDO

Authors Guglielmo D'Amico, Raimondo Manca, Giovanni Salvi

Publication date 11 February 2014

Published in Statistics \& Probability Letters (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1210.3164

zbMATH Keywords

higher-order momentsinterest ratesemi-Markov process

Mathematics Subject Classification ID

Applications of stochastic analysis (to PDEs, etc.) (60H30) Diffusion processes (60J60) Applications of Markov renewal processes (reliability, queueing networks, etc.) (60K20) Interest rates, asset pricing, etc. (stochastic models) (91G30)

Abstract: In this paper we propose a semi-Markov modulated model of interest rates. We assume that the switching process is a semi-Markov process with finite state space E and the modulated process is a diffusive process. We derive recursive equations for the higher order moments of the discount factor and we describe a Monte Carlo al- gorithm to execute simulations. The results are specialized to classical models as those by Vasicek, Hull and White and CIR with a semi-Markov modulation.

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Cites work

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Cited in

(6)

• New measure selection for Hunt-Devolder semi-Markov regime switching interest rate models
• Markov-functional interest rate models.
• Semi-Markov regime switching interest rate models under minimal entropy martingale measure
• Estimation for discrete-time semi-Markov reward processes: analysis and inference
• A semi-martingale representation for a semi-Markov chain with application to finance
• Markov-functional interest rate models

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