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On Markov-modulated exponential-affine bond price formulae. (English) Zbl 1169.91342

Summary: We consider the bond valuation problem when the short rate process is described by a Markovian regime-switching Hull-White model or a Markovian regime-switching Cox-Ingersoll-Ross model. In each of the two short rate models, we establish a Markov-modulated exponential-affine bond price formula with coefficients given in terms of fundamental matrix solutions of linear matrix differential equations.

MSC:

91G30 Interest rates, asset pricing, etc. (stochastic models)
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