Related papers: Regime-switching affine term structures
By employing the technique of enlargement of filtrations, we demonstrate how to incorporate information about the future trend of the stochastic interest rate process into a financial model. By modeling the interest rate as an affine…
This paper presents the solution to a European option pricing problem by considering a regime-switching jump diffusion model of the underlying financial asset price dynamics. The regimes are assumed to be the results of an observed pure…
A novel mechanism for the appearance of oriented processes is investigated with a flexible dynamical system overcoming barriers. Under non-equilibrium condition with external driving, reaction paths deviate from that at equilibrium with an…
The goal of this survey article is to explain and elucidate the affine structure of recent models appearing in the rough volatility literature, and show how it leads to exponential-affine transform formulas.
We address a class of Markov jump linear systems that are characterized by the underlying Markov process being time-inhomogeneous with a priori unknown transition probabilities. Necessary and sufficient conditions for uniform stochastic…
We consider Markov Decision Processes (MDPs) in which every stationary policy induces the same graph structure for the underlying Markov chain and further, the graph has the following property: if we replace each recurrent class by a node,…
We develop a predictive-first optimisation framework for streaming hidden Markov models. Unlike classical approaches that prioritise full posterior recovery under a fully specified generative model, we assume access to regime-specific…
Positive recurrence of a $d$-dimensional diffusion with switching and with one recurrent and one transient regimes and variable switching intensities is established under suitable conditions. The approach is based on embedded Markov chains.
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…
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…
In this paper we develop a framework for discretely compounding interest rates which is based on the forward price process approach. This approach has a number of advantages, in particular in the current market environment. Compared to the…
This paper treats the global stabilization problem of continuous-time switched affine systems that have rank-deficient convex combinations of their dynamic matrices. For these systems, the already known set of attainable equilibrium points…
We consider Markov-switching regression models, i.e. models for time series regression analyses where the functional relationship between covariates and response is subject to regime switching controlled by an unobservable Markov chain.…
We develop a model for the dynamic evolution of default-free and defaultable interest rates in a LIBOR framework. Utilizing the class of affine processes, this model produces positive LIBOR rates and spreads, while the dynamics are…
This paper is a supplement to our recent paper ``Alternative models for FX, arbitrage opportunities and efficient pricing of double barrier options in L\'evy models". We introduce the class of regime-switching L\'evy models with memory,…
We develop a model for credit rating migration that accounts for the impact of economic state fluctuations on default probabilities. The joint process for the economic state and the rating is modelled as a time-homogeneous Markov chain.…
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…
We consider a continuous-time financial market with an asset whose price is modeled by a linear stochastic differential equation with drift and volatility switching driven by a uniformly ergodic jump Markov process with a countable state…
In this note, a general approach to the study of non-stationary Markov chains with catastrophes and the corresponding queuing models is considered, as well as to obtain estimates of the limiting regime itself. As an illustration, an example…
We study merchant energy production modeled as a compound switching and timing option. The resulting Markov decision process is intractable. State-of-the-art approximate dynamic programming methods applied to realistic instances of this…