Jump-telegraph models for the short rate: pricing and convexity adjustments of zero coupon bonds
Gerardo E. Oleaga and
Papers from arXiv.org
In this article, we consider a Markov-modulated model with jumps for short rate dynamics. We obtain closed formulas for the term structure and forward rates using the properties of the jump-telegraph process and the expectation hypothesis. The results are compared with the numerical solution of the corresponding partial differential equation.
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