Related papers: Regime-switching affine term structures
One of the peculiarities of power and gas markets is the delivery mechanism of forward contracts. The seller of a futures contract commits to deliver, say, power, over a certain period, while the classical forward is a financial agreement…
We present a dynamic model for forward curves within the Heath-Jarrow-Morton framework under the Musiela parametrization. The forward curves take values in a function space H, and their dynamics follows a stochastic partial differential…
In this work we provide a computationally tractable procedure for designing affine control policies, applied to constrained, discrete-time, partially observable, linear systems subject to set bounded disturbances, stochastic noise and…
We develop a multi-curve term structure setup in which the modelling ingredients are expressed by rational functionals of Markov processes. We calibrate to LIBOR swaptions data and show that a rational two-factor lognormal multi-curve model…
In this paper we introduce a flexible HJM-type framework that allows for consistent modelling of intraday, spot, futures, and option prices. This framework is based on stochastic processes with economic interpretations and consistent with…
The phenomenology of the forward rate curve (FRC) can be accurately understood by the fluctuations of a stiff elastic string (Le Coz and Bouchaud, 2024). By relating the exogenous shocks driving such fluctuations to the surprises in the…
This paper investigates the pricing of European-style lookback options when the price dynamics of the underlying risky asset are assumed to follow a Markov-modulated Geo-metric Brownian motion; that is, the appreciation rate and the…
This article investigates a regime-switching investment strategy aimed at mitigating downside risk by reducing market exposure during anticipated unfavorable market regimes. We highlight the statistical jump model (JM) for market regime…
In an observed generalized semi-Markov regime, estimation of transition rate of regime switching leads towards calculation of locally risk minimizing option price. Despite the uniform convergence of estimated step function of transition…
Markov Decision Processes (MDPs) have been used to formulate many decision-making problems in science and engineering. The objective is to synthesize the best decision (action selection) policies to maximize expected rewards (or minimize…
We consider a risk-sensitive optimization of consumption-utility on infinite time horizon where the one-period investment gain depends on an underlying economic state whose evolution over time is assumed to be described by a discrete-time,…
Switched linear systems are time-varying nonlinear systems whose dynamics switch between different modes, where each mode corresponds to different linear dynamics. They arise naturally to model unexpected failures, environment uncertainties…
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…
This paper studies a scheduling control problem for a single-server multiclass queueing network in heavy traffic, operating in a changing environment. The changing environment is modeled as a finite state Markov process that modulates the…
We study the pricing of European-style options written on forward contracts within function-valued infinite-dimensional affine stochastic volatility models. The dynamics of the underlying forward price curves are modeled within the…
Alternative risk-free rates (RFRs) play a central role in the reform of interest rate benchmarks. We study a model for RFRs driven by a general affine process. Under minimal assumptions, we derive explicit valuation formulas for…
The paper proposes a class of financial market models which are based on inhomogeneous telegraph processes and jump diffusions with alternating volatilities. It is assumed that the jumps occur when the tendencies and volatilities are…
Markov switching models (MSMs) are probabilistic models that employ multiple sets of parameters to describe different dynamic regimes that a time series may exhibit at different periods of time. The switching mechanism between regimes is…
In the regime switching extension of Black-Scholes-Merton model of asset price dynamics, one assumes that the volatility coefficient evolves as a hidden pure jump process. Under the assumption of Markov regime switching, we have considered…
Given a Heath-Jarrow-Morton (HJM) interest rate model $\mathcal{M}$ and a parametrized family of finite dimensional forward rate curves $\mathcal{G}$, this paper provides a technique for projecting the infinite dimensional forward rate…