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APPLIED MATHEMATIC SEMINAR
REGIME SWITCHING MODELS
FOR THE SHORT RATE
SPEAKER: Gerardo Oleaga (UCM)
DATE: Thursday, 21 March 2019 - 17:30
VENUE: Aula 320, Departamento de Matemáticas, UAM
ABSTRACT: We present a model for the dynamics of the short
rate with regime switches and jumps. The model proposed is
such that the drift, jump size, and jump intensity depend on a
continuous time Markov chain with two states. The process
belong to the family of Markov-modulated processes. Regime
switches are due to seasonal effects and jumps are caused by
sudden changes in the market environment. Under the
no-arbitrage hypothesis, we provide the term structure
equations, given by a system of hyperbolic partial differential
equations. This is part of a joint work with Oscar López and
Alejandra Sánchez.