Markov switching quadratic term structure models
Stéphane Goutte
Papers from arXiv.org
Abstract:
In this paper, we consider a discrete time economy where we assume that the short term interest rate follows a quadratic term structure of a regime switching asset process. The possible non-linear structure and the fact that the interest rate can have different economic or financial trends justify the interest of Regime Switching Quadratic Term Structure Model (RS-QTSM). Indeed, this regime switching process depends on the values of a Markov chain with a time dependent transition probability matrix which can well captures the different states (regimes) of the economy. We prove that under this modelling that the conditional zero coupon bond price admits also a quadratic term structure. Moreover, the stochastic coefficients which appear in this decomposition satisfy an explicit system of coupled stochastic backward recursions.
Date: 2013-05
References: Add references at CitEc
Citations:
Downloads: (external link)
http://arxiv.org/pdf/1305.2693 Latest version (application/pdf)
Related works:
Working Paper: Markov switching quadratic term structure models (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1305.2693
Access Statistics for this paper
More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators (help@arxiv.org).