An Exact Solution of the Term Structure of Interest Rate Under Regime-Switching Risk

Shu Wu and Yong Zeng ()
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Yong Zeng: University of Missouri at Kansas City

Chapter 1 in Hidden Markov Models in Finance, 2007, pp 1-14 from Springer

Abstract: Summary Regime-switching risk has been recently studied in an general equilibrium setting and empirically documented as an significant factor in bond premium. In this paper we apply no arbitrage approach to derive an exact solution of the term structure of interest rates in an essentially-affine-type model under regime-switching risk.

Keywords: Term structure model; regime-switching risk; marked; point process; affine diffusion (search for similar items in EconPapers)
Date: 2007
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Persistent link: https://EconPapers.repec.org/RePEc:spr:isochp:978-0-387-71163-8_1

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DOI: 10.1007/0-387-71163-5_1

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