Related papers: Markov switching quadratic term structure models
Financial markets tend to switch between various market regimes over time, making stationarity-based models unsustainable. We construct a regime-switching model independent of asset classes for risk-adjusted return predictions based on…
The Convolution and Master equations governing the time behavior of the term structure of Interest Rates are set up both for continuous variables and for their discretised forms. The notion of Seed is introduced. The discretised theoretical…
In this paper, a finite-state mean-reverting model for the short-rate, based on the continuous time Ehrenfest process, will be examined. Two explicit pricing formulae for zero-coupon bonds will be derived in the general and the special…
Overnight rates, such as the SOFR (Secured Overnight Financing Rate) in the US, are central to the current reform of interest rate benchmarks. A striking feature of overnight rates is the presence of jumps and spikes occurring at…
The problem of appropriately matching items subject to compatibility constraints arises in a number of important applications. While most of the literature on matching theory focuses on a static setting with a fixed number of items, several…
This paper studies the pricing of European-style Asian options when the price dynamics of the underlying risky asset are assumed to follow a Markov- modulated geometric Brownian motion; that is, the appreciation rate and the volatility of…
In this paper we introduce a class of information-based models for the pricing of fixed-income securities. We consider a set of continuous- time information processes that describe the flow of information about market factors in a monetary…
In this paper we aim to improve existing empirical exchange rate models by accounting for uncertainty with respect to the underlying structural representation. Within a flexible Bayesian non-linear time series framework, our modeling…
In this paper, we consider the discounted continuous-time Markov decision process (CTMDP) with a lower bounding function. In this model, the negative part of each cost rate is bounded by the drift function, say $w$, whereas the positive…
In this paper, we consider daily financial data of a collection of different stock market indices, exchange rates, and interest rates, and we analyze their multi-scaling properties by estimating a simple specification of the…
We study zero-sum stochastic games for controlled discrete time Markov chains with risk-sensitive average cost criterion with countable state space and Borel action spaces. The payoff function is nonnegative and possibly unbounded. Under a…
We explore the statistical and economic importance of restrictions on the dynamics of risk compensation from the perspective of a real-time Bayesian learner who predicts bond excess returns using dynamic term structure models (DTSMs). The…
A regime-switching multivariate time series model which is closed under margins is built. The model imposes a restriction on all lower-dimensional sub-processes to follow a regime-switching process sharing the same latent regime sequence…
This paper studies the robustness of quasi-maximum-likelihood (QML) estimation in hidden Markov models (HMMs) when the regime-switching structure is misspecified. Specifically, we examine the case where the true data-generating process…
We consider a financial market in discrete time and study pricing and hedging conditional on the information available up to an arbitrary point in time. In this conditional framework, we determine the structure of arbitrage-free prices.…
Many natural and engineered systems can be modeled as discrete state Markov processes. Often, only a subset of states are directly observable. Inferring the conditional probability that a system occupies a particular hidden state, given the…
We introduce the Volterra Stein-Stein model with stochastic interest rates, where both volatility and interest rates are driven by correlated Gaussian Volterra processes. This framework unifies various well-known Markovian and non-Markovian…
We consider Markov-switching regression models, i.e. models for time series regression analyses where the functional relationship between covariates and response is subject to regime switching controlled by an unobservable Markov chain.…
In an incomplete continuous-time securities market with uncertainty generated by Brownian motions, we derive closed-form solutions for the equilibrium interest rate and market price of risk processes. The economy has a finite number of…
We introduce a class of short-rate models that exhibit a ``higher for longer'' phenomenon. Specifically, the short-rate is modeled as a general time-homogeneous one-factor Markov diffusion on a finite interval. The lower endpoint is assumed…