RT Journal Article
T1 Markov-modulated jump-diffusion models for the short rate: Pricing of zero coupon bonds and convexity adjustment
A1 López, Oscar
A1 Oleaga Apadula, Gerardo Enrique
A1 Sánchez, Alejandra
AB In this article, we consider a Markov-modulated model with jumps for the short rate. Using the main properties of a telegraphic process with jumps we compute the expected short rate. We obtain closed formulas for the zero coupon bond price assuming the Unbiased Expectation Hypothesis for the forward rates. Next, we obtain the coupled system of partial differential equations for the bond price using only no-arbitrage arguments. Numerical solutions are provided for some selected examples. The results obtained from both methods are compared and allow to estimate the magnitude of the convexity-adjustment.
PB Elsevier
YR 2021
FD 2021
LK https://hdl.handle.net/20.500.14352/116672
UL https://hdl.handle.net/20.500.14352/116672
LA eng
DS Docta Complutense
RD 21 abr 2025