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An interest rate model with Markov chain volatility level

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  • Radkov, Petar

Abstract

We consider a two factor interest rate model, where the volatility level follows continuous time finite state Markov chain. We derive the close form solution of bond price that involves fundamental matrix.

Suggested Citation

  • Radkov, Petar, 2010. "An interest rate model with Markov chain volatility level," MPRA Paper 60179, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:60179
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    File URL: https://mpra.ub.uni-muenchen.de/60179/1/MPRA_paper_60176.pdf
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    References listed on IDEAS

    as
    1. Robert Elliott & Rogemar Mamon, 2002. "An interest rate model with a Markovian mean reverting level," Quantitative Finance, Taylor & Francis Journals, vol. 2(6), pages 454-458.
    2. Robert Elliott & Paul Fischer & Eckhard Platen, 1999. "Filtering and Parameter Estimation for a Mean Reverting Interest Rate Model," Research Paper Series 17, Quantitative Finance Research Centre, University of Technology, Sydney.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    interest rate model; bond price close form solution; Markov chain volatility level;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • G00 - Financial Economics - - General - - - General

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