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On Markov-modulated Exponential-affine Bond Price Formulae

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Author Info

  • Robert Elliott
  • Tak Kuen Siu

Abstract

We consider the bond valuation problem when the short rate process is described by a Markovian regime-switching Hull-White model or a Markovian regime-switching Cox-Ingersoll-Ross model. In each of the two short rate models, we establish a Markov-modulated exponential-affine bond price formula with coefficients given in terms of fundamental matrix solutions of linear matrix differential equations.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/13504860802015744
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Mathematical Finance.

Volume (Year): 16 (2009)
Issue (Month): 1 ()
Pages: 1-15

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Handle: RePEc:taf:apmtfi:v:16:y:2009:i:1:p:1-15

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Related research

Keywords: Exponential affine form; bond valuation; regime-switching forward measure; fundamental matrix solution;

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Cited by:
  1. Chen, Ping & Yam, S.C.P., 2013. "Optimal proportional reinsurance and investment with regime-switching for mean–variance insurers," Insurance: Mathematics and Economics, Elsevier, vol. 53(3), pages 871-883.
  2. Wei, J. & Wong, K.C. & Yam, S.C.P. & Yung, S.P., 2013. "Markowitz’s mean–variance asset–liability management with regime switching: A time-consistent approach," Insurance: Mathematics and Economics, Elsevier, vol. 53(1), pages 281-291.
  3. Shen, Yang & Siu, Tak Kuen, 2012. "Asset allocation under stochastic interest rate with regime switching," Economic Modelling, Elsevier, vol. 29(4), pages 1126-1136.
  4. Timothée Papin & Gabriel Turinici, 2012. "Prepayment option of a perpetual corporate loan: the impact of the funding costs," Working Papers hal-00768571, HAL.
  5. Timothée Papin & Gabriel Turinici, 2013. "Valuation of the Prepayment Option of a Perpetual Corporate Loan," Post-Print hal-00653041, HAL.
  6. Papin, Timothée, 2013. "Pricing of Corporate Loan : Credit Risk and Liquidity cost," Economics Thesis from University Paris Dauphine, Paris Dauphine University, number 123456789/12545 edited by Turinici, Gabriel.
  7. Huang, Gang & Mandjes, Michel & Spreij, Peter, 2014. "Weak convergence of Markov-modulated diffusion processes with rapid switching," Statistics & Probability Letters, Elsevier, vol. 86(C), pages 74-79.
  8. Shen, Yang & Siu, Tak Kuen, 2013. "Longevity bond pricing under stochastic interest rate and mortality with regime-switching," Insurance: Mathematics and Economics, Elsevier, vol. 52(1), pages 114-123.
  9. Hainaut, Donatien, 2013. "A fractal version of the Hull–White interest rate model," Economic Modelling, Elsevier, vol. 31(C), pages 323-334.

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