A semi-Markov modulated interest rate model
Copyright policy )A semi-Markov modulated interest rate model
In this paper we propose a semi-Markov modulated model of interest rates. We assume that the switching process is a semi-Markov process with finite state space E and the modulated process is a diffusive process. We derive recursive equations for the higher order moments of the discount factor and we describe a Monte Carlo al- gorithm to execute simulations. The results are specialized to classical models as those by Vasicek, Hull and White and CIR with a semi-Markov modulation.
- Roma Tre University Italy
- Sapienza University of Rome Italy
- University of Chieti-Pescara Italy
higher order moments; semi-markov process; interest rate, higher-order moments, Probability (math.PR), Applications of stochastic analysis (to PDEs, etc.), Computational Finance (q-fin.CP), semi-Markov process, FOS: Economics and business, Quantitative Finance - Computational Finance, Applications of Markov renewal processes (reliability, queueing networks, etc.), FOS: Mathematics, Pricing of Securities (q-fin.PR), Diffusion processes, Quantitative Finance - Pricing of Securities, Interest rates, asset pricing, etc. (stochastic models), interest rate, Mathematics - Probability
higher order moments; semi-markov process; interest rate, higher-order moments, Probability (math.PR), Applications of stochastic analysis (to PDEs, etc.), Computational Finance (q-fin.CP), semi-Markov process, FOS: Economics and business, Quantitative Finance - Computational Finance, Applications of Markov renewal processes (reliability, queueing networks, etc.), FOS: Mathematics, Pricing of Securities (q-fin.PR), Diffusion processes, Quantitative Finance - Pricing of Securities, Interest rates, asset pricing, etc. (stochastic models), interest rate, Mathematics - Probability
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