Related papers: Markov switching quadratic term structure models
A nonlinear Markov chain is a discrete time stochastic process whose transitions depend on both the current state and the current distribution of the process. The nonlinear Markov chain over a infinite state space can be identified by a…
In a financial market, for agents with long investment horizons or at times of severe market stress, it is often changes in the asset price that act as the trigger for transactions or shifts in investment position. This suggests the use of…
This paper contributes an in-depth study of properties of continuous time Markov chains (CTMCs) on non-negative integer lattices $\N_0^d$, with particular interest in one-dimensional CTMCs with polynomial transitions rates. Such stochastic…
The reduction of a continuous Markov process with multiple metastable states to a discrete rate process is investigated in the presence of slow time dependent parameters such as periodic external forces or slowly fluctuating barrier…
We study a discrete-time consumption-based capital asset pricing model under expectations-based reference-dependent preferences. More precisely, we consider an endowment economy populated by a representative agent who derives utility from…
This paper introduces a new type of risk measures, namely regime switching entropic risk measures, and study their applicability through simulations. The state of the economy is incorporated into the entropic risk formulation by using a…
In this work, we focus on the stationary analysis of a specific class of continuous time Markov-modulated reflected random walks in the quarter plane with applications in the modelling of two-node Markov-modulated queueing networks with…
We introduce a Vasicek-type short rate model which has two additional parameters representing memory effect. This model presents better results in yield curve fitting than the classical Vasicek model. We derive closed-form expressions for…
This note studies a certain stochastic evolution equation in the space of probability measures, including existence and uniqueness results. A solution of this equation gives rise, in a natural way, to an interest rate term structure model,…
This paper offers a new class of models of the term structure of interest rates. We allow each instantaneous forward rate to be driven by a different stochastic shock, constrained in such a way as to keep the forward rate curve continuous.…
We study a discrete-time Markov process $X_n\in\mathbb{R}^d$, for which the distribution of the future increments depends only on the relative ranking of its components (descending order by value). We endow the process with a…
In common finance literature, Black-Scholes partial differential equation of option pricing is usually derived with no-arbitrage principle. Considering an asset market, Merton applied the Hamilton-Jacobi-Bellman techniques of his…
We develop a general term structure framework taking stochastic discontinuities explicitly into account. Stochastic discontinuities are a key feature in interest rate markets, as for example the jumps of the term structures in…
With the reform of interest rate benchmarks, interbank offered rates (IBORs) like LIBOR have been replaced by risk-free rates (RFRs), such as the Secured Overnight Financing Rate (SOFR) in the U.S. and the Euro Short-Term Rate (\euro STR)…
We propose a dynamic model of dependence structure between financial institutions within a financial system and we construct measures for dependence and financial instability. Employing Markov structures of joint credit migrations, our…
We consider a class of stochastic dynamical systems, called piecewise deterministic Markov processes, with states $(x, \s)\in \O\times \G$, $\O$ being a region in $\bbR^d$ or the $d$--dimensional torus, $\G$ being a finite set. The…
Through the analysis of a dataset of ultra high frequency order book updates, we introduce a model which accommodates the empirical properties of the full order book together with the stylized facts of lower frequency financial data. To do…
A comparison theorem for state-dependent regime-switching diffusion processes is established, which enables us to control pathwisely the evolution of the state-dependent switching component simply by Markov chains. Moreover, a sharp…
The aim of this paper is to present a dual-term structure model of interest rate derivatives in order to solve the two hardest problems in financial modeling: the exact volatility calibration of the entire swaption matrix, and the…
This work investigates the almost sure stabilization of a class of regime-switching systems based on discrete-time observations of both continuous and discrete components. It develops Shao's work [SIAM J. Control Optim., 55(2017), pp.…