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2018 | OriginalPaper | Buchkapitel

The Heath-Jarrow-Morton Model with Regime Shifts and Jumps Priced

verfasst von : Robert J. Elliott, Tak Kuen Siu

Erschienen in: New Methods in Fixed Income Modeling

Verlag: Springer International Publishing

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Abstract

The Heath-Jarrow-Morton model is an important tool for describing the term structure of interest rates. A regime switching version was considered by Elliott and Siu (Quant Finance 16(12):1791–1800, 2016). It is of interest to price the risk due to the regime switching and this was discussed in Elliott and Siu (Quant Finance 16(12):1791–1800, 2016). In this paper, an extended Heath-Jarrow-Morton model for stochastic forward rates, incorporating both regime shifts and jumps is considered, where jumps in the forward rate dynamics are directly triggered by the regime switches. No-arbitrage drift conditions, which take into account the pricing of both the regime-switching and jump risks, are derived in two situations. The first situation starts with a risk-neutral measure while the second situation starts with the real-world measure.

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Vorheriges Kapitel A New Approach to CIR Short-Term Rates Modelling

Nächstes Kapitel Explicit Computation of the Post-crisis Spot LIBOR in a Jump-Diffusion Framework

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Titel: The Heath-Jarrow-Morton Model with Regime Shifts and Jumps Priced
verfasst von: Robert J. Elliott
Tak Kuen Siu
Verlag: Springer International Publishing
Buch: New Methods in Fixed Income Modeling
Print ISBN: 978-3-319-95284-0

Electronic ISBN: 978-3-319-95285-7

Copyright-Jahr: 2018
DOI: https://doi.org/10.1007/978-3-319-95285-7_3