Related papers: Regime-switching affine term structures
In this paper, we establish a general stochastic maximum principle for optimal control for systems described by a continuous-time Markov regime-switching stochastic recursive utilities model. The control domain is postulated not to be…
Financial markets alternate between tranquil periods and episodes of stress, and return dynamics can change substantially across these regimes. We study regime-dependent dynamics in developed and developing equity indices using a…
We consider a model for interest rates, where the short rate is given by a time-homogenous, one-dimensional affine process in the sense of Duffie, Filipovic and Schachermayer. We show that in such a model yield curves can only be normal,…
This work is devoted to the almost sure stabilization of adaptive control systems that involve an unknown Markov chain. The control system displays continuous dynamics represented by differential equations and discrete events given by a…
We explore tree-based macroeconomic regime-switching in the context of the dynamic Nelson-Siegel (DNS) yield-curve model. In particular, we customize the tree-growing algorithm to partition macroeconomic variables based on the DNS model's…
We consider discrete-time switching systems composed of a finite family of affine sub-dynamics. First, we recall existing results and present further analysis on the stability problem, the existence and characterization of compact…
Markov chains for probability distributions related to matrix product states and 1D Hamiltonians are introduced. With appropriate 'inverse temperature' schedules, these chains can be combined into a random approximation scheme for ground…
The concepts of probability, statistics and stochastic theory are being successfully used in structural engineering. Markov Chain modelling is a simple stochastic process model that has found its application in both describing stochastic…
Predictive constructions are a powerful way of characterizing the probability law of stochastic processes with certain forms of invariance, such as exchangeability or Markov exchangeability. When de Finetti-like representation theorems are…
We consider the problem of defining and fitting models of autoregressive time series of probability distributions on a compact interval of $\mathbb{R}$. An order-$1$ autoregressive model in this context is to be understood as a Markov…
We show the existence of a broad class of affine Markov processes in the cone of positive self-adjoint Hilbert-Schmidt operators. Such processes are well-suited as infinite dimensional stochastic volatility models. The class of processes we…
Markov switching models are a popular family of models that introduces time-variation in the parameters in the form of their state- or regime-specific values. Importantly, this time-variation is governed by a discrete-valued latent…
We introduce a prototype model in an attempt to capture some aspects of market dynamics simulating a trading mechanism. The model description starts with a discrete-space, continuous-time Markov process describing arrival and movement of…
We derive the exact solution of a one-dimensional Markov functional model with log-normally distributed interest rates in discrete time. The model is shown to have two distinct limiting states, corresponding to small and asymptotically…
We investigate an M/M/1 queue operating in two switching environments, where the switch is governed by a two-state time-homogeneous Markov chain. This model allows to describe a system that is subject to regular operating phases alternating…
We revisit affine diffusion processes on general and on the canonical state space in particular. A detailed study of theoretic and applied aspects of this class of Markov processes is given. In particular, we derive admissibility conditions…
This paper considers general term structure models like the ones appearing in portfolio credit risk modelling or life insurance. We give a general model starting from families of forward rates driven by infinitely many Brownian motions and…
Working on the daily closing prices and logreturns, in this paper we deal with the use of Hidden Markov Models (HMMs) to forecast the price of the EUR/USD Futures. The aim of our work is to understand how the HMMs describe different…
We show that, for the purpose of pricing Swaptions, the Swap rate and the corresponding Forward rates can be considered lognormal under a single martingale measure. Swaptions can then be priced as options on a basket of lognormal assets and…
In this paper we consider a broad class of infinite horizon discrete-time optimal control models that involve a nonnegative cost function and an affine mapping in their dynamic programming equation. They include as special cases classical…