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An Exact Solution of the Term Structure of Interest Rate Under Regime-Switching Risk

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Hidden Markov Models in Finance

Part of the book series: International Series in Operations Research & Management Science ((ISOR,volume 104))

Summary

Regime-switching risk has been recently studied in an general equilibrium setting and empirically documented as an significant factor in bond premium. In this paper we apply no arbitrage approach to derive an exact solution of the term structure of interest rates in an essentially-affine-type model under regime-switching risk.

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Author information

Authors and Affiliations

  1. Department of Economics, the University of Kansas, Lawrence, KS 66045, USA

    Shu Wu

  2. Department of Mathematics and Statistics, University of Missouri at Kansas City, Kansas City, MO 64110, USA

    Yong Zeng

Authors
  1. Shu Wu
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  2. Yong Zeng
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Corresponding author

Correspondence to Shu Wu .

Editor information

Editors and Affiliations

  1. University of Western Ontario, London, Canada

    Rogemar S. Mamon

  2. University of Calgary, Calgary, Canada

    Robert J. Elliott

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Wu, S., Zeng, Y. (2007). An Exact Solution of the Term Structure of Interest Rate Under Regime-Switching Risk. In: Mamon, R.S., Elliott, R.J. (eds) Hidden Markov Models in Finance. International Series in Operations Research & Management Science, vol 104. Springer, Boston, MA. https://doi.org/10.1007/0-387-71163-5_1

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