Related papers: Markov switching quadratic term structure models
We develop a version of the fundamental theorem of asset pricing for discrete-time markets with proportional transaction costs and model uncertainty. A robust notion of no-arbitrage of the second kind is defined and shown to be equivalent…
We show that stochastic processes with linear conditional expectations and quadratic conditional variances are Markov, and their transition probabilities are related to a three-parameter family of orthogonal polynomials which generalize the…
In this paper we develop a novel hidden Markov graphical model to investigate time-varying interconnectedness between different financial markets. To identify conditional correlation structures under varying market conditions and…
In the paper we consider a stochastic model which called Markov Q-processes that forms a continuous-time Markov population system. Markov Q-processes are defined as stochastic Markov branching processes with trajectories continuing in the…
The expansion of global production networks has raised many important questions about the interdependence among countries and how future changes in the world economy are likely to affect the countries' positioning in global value chains. We…
This work provides complete description of Quasistationary Distributions (QSDs) for Markov chains with a unique absorbing state and an irreducible set of non-absorbing states. As is well-known, every QSD has an associated absorption…
This paper introduces a new approach for estimating core inflation indicators based on common factors across a broad range of price indices. Specifically, by utilizing procedures for detecting multiple regimes in high-dimensional factor…
We investigate the joint description of the interest-rate term stuctures of Italy and an AAA-rated European country by mean of a --here proposed-- correlated CIR-like bivariate model where one of the state variables is interpreted as a…
We consider a generalization of the Heath Jarrow Morton model for the term structure of interest rates where the forward rate is driven by Paretian fluctuations. We derive a generalization of It\^{o}'s lemma for the calculation of a…
Misperceptions about extreme dependencies between different financial assets have been an im- portant element of the recent financial crisis. This paper studies inhomogeneity in dependence structures using Markov switching regular vine…
In this study, we consider the asset pricing under model uncertainty with discrete time and states structure. For the single-period securities model, we give a novel definition of arbitrage under a family of probability, and explore of its…
Continuous Time Markov Chains (CTMC) have been used extensively to model reliability of storage systems. While the exponentially distributed sojourn time of Markov models is widely known to be unrealistic (and it is necessary to consider…
We present two methodologies on the estimation of rating transition probabilities within Markov and non-Markov frameworks. We first estimate a continuous-time Markov chain using discrete (missing) data and derive a simpler expression for…
The problem of existence of arbitrage free and monotone CDO term structure models is studied. Conditions for positivity and monotonicity of the corresponding Heath-Jarrow-Morton-Musiela equation for the $x$-forward rates with the use of the…
We explore a stochastic model that enables capturing external influences in two specific ways. The model allows for the expression of uncertainty in the parametrisation of the stochastic dynamics and incorporates patterns to account for…
This paper is concerned with a stochastic linear-quadratic optimal control problem of Markovian regime switching system with model uncertainty and partial information, where the information available to the control is based on a…
In many dynamical systems in nature, the law of the dynamics changes along with the temporal evolution of the system. These changes are often associated with the occurrence of certain events. The timing of occurrence of these events…
In their activity, the traders approximate the rate of return by integer multiples of a minimal one. Therefore, it can be regarded as a quantized variable. On the other hand, there is the impossibility of observing the rate of return and…
We prove that the variance swap rate (fair strike) equals the price of a co-terminal European-style contract when the underlying is an exponential Markov process, time-changed by an arbitrary continuous stochastic clock, which has arbitrary…
In the classical model of stock prices which is assumed to be Geometric Brownian motion, the drift and the volatility of the prices are held constant. However, in reality, the volatility does vary. In quantitative finance, the Heston model…