Pricing of discount bonds with a Markov switching regime

Robert Elliott () and Katsumasa Nishide

Annals of Finance, 2014, vol. 10, issue 3, 509-522

Abstract: We consider a Markov switching regime and price a discount bond using a CIR-type short rate model. An explicit formula is obtained for the bond price which includes the solution of a matrix ODE. Our model is easy to calculate and captures the effect of regime uncertainty in the price and term structure. Copyright Springer-Verlag Berlin Heidelberg 2014

Keywords: Bond pricing; Term structure; Markov switching regime; CIR model; Stochastic flows; G12; D43; D81; E32 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (7)

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DOI: 10.1007/s10436-013-0244-3

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