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The tail behavior of jump-diffusion Cox–Ingersoll–Ross processes with regime-switching

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  • Ji, Huijie
  • Xi, Fubao

Abstract

This paper studies the tail behavior of jump-diffusion Cox–Ingersoll–Ross (JCIR) processes with regime-switching. We first provide the criteria of the recurrent property of a JCIR process with regime-switching. Under the conditions of the positive recurrence, we give the tail behavior of the stationary distribution of this process. We also show the different roles played by the jumping component and the regime-switching component in justifying the heavy-tailed or light-tailed property of the stationary distribution.

Suggested Citation

  • Ji, Huijie & Xi, Fubao, 2022. "The tail behavior of jump-diffusion Cox–Ingersoll–Ross processes with regime-switching," Statistics & Probability Letters, Elsevier, vol. 181(C).
    • Handle: RePEc:eee:stapro:v:181:y:2022:i:c:s0167715221002339
    DOI: 10.1016/j.spl.2021.109271
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    References listed on IDEAS

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    1. Andrew Ang & Geert Bekaert, 2002. "International Asset Allocation With Regime Shifts," The Review of Financial Studies, Society for Financial Studies, vol. 15(4), pages 1137-1187.
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    3. Ang, Andrew & Bekaert, Geert, 2002. "Short rate nonlinearities and regime switches," Journal of Economic Dynamics and Control, Elsevier, vol. 26(7-8), pages 1243-1274, July.
    4. Cox, John C. & Ingersoll Junior, Jonathan E. & Ross, Stephen A., 2007. "A theory of the term structure of interest rates," RAE - Revista de Administração de Empresas, FGV-EAESP Escola de Administração de Empresas de São Paulo (Brazil), vol. 47(2), April.
    5. Robert J. Elliott & Tak Kuen Siu, 2016. "Pricing regime-switching risk in an HJM interest rate environment," Quantitative Finance, Taylor & Francis Journals, vol. 16(12), pages 1791-1800, December.
    6. Zhang, Zhenzhong & Tong, Jinying & Hu, Liangjian, 2016. "Long-term behavior of stochastic interest rate models with Markov switching," Insurance: Mathematics and Economics, Elsevier, vol. 70(C), pages 320-326.
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    Cited by:

    1. Shengrong Wang & Li Tan, 2026. "Strong Convergence of the Euler Scheme for a Delayed Jump-Diffusion CIR Model with Markovian Switching," Journal of Theoretical Probability, Springer, vol. 39(1), pages 1-29, March.

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