Regime Switching and Bond Pricing

Christian Gourieroux, Alain Monfort, Fulvio Pegoraro () and Jean-Paul Renne

No 2013-48, Working Papers from Center for Research in Economics and Statistics

Abstract: This paper proposes an overview of the usefulness of the regime switching approach for building various kinds of bond pricing models and of the roles played by the regimes in these models. Both default-free and defaultable bonds are considered. The regimes can be used to capture stochastic drifts and/or volatilities, to represent discrete target rates, to incorporate business cycles or crises, to introduce contagion, to reproduce zero lower bound spells, or to evaluate the impact of standard or non-standard monetary policies. From a technical point of view, we stress the key role of Markov chains, Compound Autoregressive (Car) processes, Regime Switching Car processes and multi-horizon Laplace transforms

Keywords: Term Structure; Regime Switching; Affine Models; Car Process; Multi-horizon Laplace Transform; Contagion; Default Risk; Monetary Policy (search for similar items in EconPapers)
JEL-codes: E43 G12 (search for similar items in EconPapers)
Pages: 52
Date: 2013-06
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Regime Switching and Bond Pricing (2014)
Working Paper: Regime Switching and Bond Pricing (2013)
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