Pricing of Discount Bonds with a Markov Switching Regime

We consider a Markov switching regime and price a discount bond using two popular models for the short rate, the Vasicek- and CIR-dynamics. In both cases, 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 on the price and the term structure.

MoreLess

Year of publication:	2013-04
Authors:	Elliott, Robert J. ; Nishide, Katsumasa
Institutions:	Institute of Economic Research, Kyoto University
Subject:	Investment \| Bond pricing \| term structure \| Markov switching regime \| Vasicek model \| CIR model \| stochastic flows

More details

Extent:	application/pdf
Series:	KIER Working Papers.
Type of publication:	Book / Working Paper
Notes:	Number 859
Classification:	G12 - Asset Pricing ; E32 - Business Fluctuations; Cycles
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10010860082