Bond valuation under a discrete-time regime-switching term-structure model and its continuous-time extension

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dc.contributor.authorElliott, Roberteng
dc.contributor.authorSiu, Tak Kueneng
dc.contributor.authorBadescu, Alexeng
dc.date.accessioned2012-06-13T18:00:30Z
dc.date.available2012-06-13T18:00:30Z
dc.date.issued2011
dc.descriptionArticle deposited according to publisher policy posted on SHERPA/ROMEO, June 13, 2012eng
dc.description.abstractPurpose – The purpose of this paper is to consider a discrete-time, Markov, regime-switching, affine term-structure model for valuing bonds and other interest rate securities. The proposed model incorporates the impact of structural changes in (macro)-economic conditions on interest-rate dynamics. The market in the proposed model is, in general, incomplete. A modified version of the Esscher transform, namely, a double Esscher transform, is used to specify a price kernel so that both market and economic risks are taken into account. Design/methodology/approach – The market in the proposed model is, in general, incomplete. A modified version of the Esscher transform, namely, a double Esscher transform, is used to specify a price kernel so that both market and economic risks are taken into account. Findings – The authors derive a simple way to give exponential affine forms of bond prices using backward induction. The authors also consider a continuous-time extension of the model and derive exponential affine forms of bond prices using the concept of stochastic flows.eng
dc.description.refereedYeseng
dc.identifier.citationRobert J. Elliott, Tak Kuen Siu, Alex Badescu, (2011) "Bond valuation under a discrete-time regime-switching term-structure model and its continuous-time extension", Managerial Finance, Vol. 37 Iss: 11, pp.1025 - 1047eng
dc.identifier.doihttp://dx.doi.org/10.11575/PRISM/34067
dc.identifier.issn0307-4358
dc.identifier.urihttp://hdl.handle.net/1880/48987
dc.language.isoengeng
dc.publisherEmeraldeng
dc.publisher.corporateUniversity of Calgaryeng
dc.publisher.facultyHaskayne School of Businesseng
dc.publisher.hasversionPost-print
dc.publisher.urlhttp://www.emeraldinsight.com/journals.htm?issn=0307-4358eng
dc.subjectbondseng
dc.subjectSecuritieseng
dc.subject.otherInterest rateseng
dc.subject.otherFinance modelingeng
dc.subject.otherDouble Esscher transformeng
dc.subject.otherRegime switching riskeng
dc.subject.otherMarkov chaineng
dc.subject.otherExponential affine formeng
dc.subject.otherContinuous-time modelseng
dc.subject.otherProduct density processeseng
dc.titleBond valuation under a discrete-time regime-switching term-structure model and its continuous-time extensioneng
dc.typejournal articleeng
thesis.degree.disciplineFinanceeng
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