Related papers: Regime-switching affine term structures

A heat kernel approach is proposed for the development of a general, flexible, and mathematically tractable asset pricing framework in finite time. The pricing kernel, giving rise to the price system in an incomplete market, is modelled by…

We provide a general HJM framework for forward contracts written on abstract market indices with arbitrary fixing and payment adjustments, and featuring collateralization in any currency denominations. In view of this, we first provide a…

This article provides the mathematical foundation for stochastically continuous affine processes on the cone of positive semidefinite symmetric matrices. This analysis has been motivated by a large and growing use of matrix-valued affine…

In this paper, we study term structure movements in the spirit of Heath, Jarrow, and Morton [Econometrica 60(1), 77-105] under volatility uncertainty. We model the instantaneous forward rate as a diffusion process driven by a G-Brownian…

The two main approaches in credit risk are the structural approach pioneered in Merton (1974) and the reduced-form framework proposed in Jarrow & Turnbull (1995) and in Artzner & Delbaen (1995). The goal of this article is to provide a…

Switching ARMA models greatly enhance the standard linear models to the extent that different ARMA model is allowed in a different regime, and the regime switching is typically assumed a Markov chain on the finite states of potential…

We derive explicit valuation formulae for an exotic path-dependent interest rate derivative, namely an option on the composition of LIBOR rates. The formulae are based on Fourier transform methods for option pricing. We consider two models…

We consider a market with a term structure of credit risky bonds in the single-name case. We aim at minimal assumptions extending existing results in this direction: first, the random field of forward rates is driven by a general…

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…

Continuous time financial market models are often motivated as scaling limits of discrete time models. The objective of this paper is to establish such a connection for a robust framework. More specifically, we consider discrete time models…

We introduce a new and highly tractable structural model for spot and derivative prices in electricity markets. Using a stochastic model of the bid stack, we translate the demand for power and the prices of generating fuels into electricity…

We present compelling empirical evidence for a new interpretation of the Forward Rate Curve (FRC) term structure. We find that the average FRC follows a square-root law, with a prefactor related to the spot volatility, suggesting a…

Financial markets change their behaviours abruptly. The mean, variance and correlation patterns of stocks can vary dramatically, triggered by fundamental changes in macroeconomic variables, policies or regulations. A trader needs to adapt…

In this work, we extend the idea of Quantum Markov chains [S. Gudder. Quantum Markov chains. J. Math. Phys., 49(7), 2008] in order to propose Quantum Hidden Markov Models (QHMMs). For that, we use the notions of Transition Operation…

This paper investigates the role of high-dimensional information sets in the context of Markov switching models with time varying transition probabilities. Markov switching models are commonly employed in empirical macroeconomic research…

Filtering is concerned with the sequential estimation of the state, and uncertainties, of a Markovian system, given noisy observations. It is particularly difficult to achieve accurate filtering in complex dynamical systems, such as those…

Switched systems are capable of modeling processes with underlying dynamics that may change abruptly over time. To achieve accurate modeling in practice, one may need a large number of modes, but this may in turn increase the model…

Using Malliavin Calculus techniques, we derive closed-form expressions for the at-the-money behaviour of the forward implied volatility, its skew and its curvature, in general Markovian stochastic volatility models with continuous paths.

We present two main theorems for stochastic processes with a Markov regime-switching model. First, we work on an existence-uniqueness theorem for a Stochastic Differential Delay Equation with Jumps and Regimes (SDDEJRs). Then, we provide…

Switched affine systems are often used to model and control complex dynamical systems that operate in multiple modes. However, uncertainties in the system matrices can challenge their stability and performance. This paper introduces a new…