Bond pricing in a hidden Markov model of the short rate |
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| Authors: | Camilla Landén |
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| Affiliation: | (1) Optimization and Systems Theory, Department of Mathematics, Royal Institute of Technology, Stockholm, Sweden (e-mail: camilla@math.kth.se) , SE |
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| Abstract: | Abstract. We consider a diffusion type model for the short rate, where the drift and diffusion parameters are modulated by an underlying Markov process. The underlying Markov process is assumed to have a stochastic differential driven by Wiener processes and a marked point process. The model for the short rate thus falls within the category of hidden Markov models. |
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| Keywords: | : Bond market term structure of interest rates regime shifts hidden Markov model |
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