Previous work on multifactor term structure models has proposed that the short rate process is a function of some unobserved diffusion process. We consider a model in which the short rate process is a function of a Markov chain which represents the 'state of the world'. This enables us to obtain...

Filtering and parameter estimation techniques from Hidden Markov Models are applied to a discrete time asset allocation problem. For the commonly used mean-variance utility explicit optimal strategies are obtained

This paper is intended to elaborate regime switching and optimal investment timing in a real option framework. The paper differs from the existing literature in a significant way. In this paper we first consider an irreversible investment timing decision by adding a hidden Markov process to...

We first discuss some mathematical tools used to compute the intensity of a single jump process, in its canonical filtration. In the second part, we try to clarify the meaning of default and the links between the default time, the asset?s filtration, and the intensity of the default time. We...

The guaranteed minimum withdrawal benefit (GMWB) rider, as an add on to a variable annuity (VA), guarantees the return of premiums in the form of peri- odic withdrawals while allowing policyholders to participate fully in any market gains. GMWB riders represent an embedded option on the account...

We construct a binomial model for a guaranteed minimum withdrawal benefit (GMWB) rider to a variable annuity (VA) under optimal policyholder behaviour. The binomial model results in explicitly formulated perfect hedging strategies funded using only periodic fee income. We consider the separate...

The guaranteed minimum withdrawal benefit (GMWB) rider, as an add on to a variable annuity (VA), guarantees the return of premiums in the form of periodic withdrawals while allowing policyholders to participate fully in any market gains. GMWB riders represent an embedded option on the account...