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arXiv · 1901.02995

Jump-telegraph models for the short rate: pricing and convexity adjustments of zero coupon bonds

Oscar Lopez·Gerardo E. Oleaga·Alejandra Sanchez
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Abstract

In this article, we consider a Markov-modulated model with jumps for short rate dynamics. We obtain closed formulas for the term structure and forward rates using the properties of the jump-telegraph process and the expectation hypothesis. The results are compared with the numerical solution of the corresponding partial differential equation.

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Oscar Lopez, Gerardo E. Oleaga, Alejandra Sanchez. 2019-01-10. Jump-telegraph models for the short rate: pricing and convexity adjustments of zero coupon bonds. https://arxiv.org/abs/1901.02995

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