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The term structure of interest rates in a hidden markov setting

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dc.contributor.authorElliott, R.
dc.contributor.authorWilson, C.
dc.contributor.editorMamon, R.
dc.contributor.editorElliott, R.
dc.date.issued2007
dc.description.abstractWe describe an interest rate model in which randomness in the shortterm interest rate is partially due to a Markov chain. We model randomness through the volatility and mean-reverting level as well as through the interest rate directly. The short- term interest rate is modeled in a risk-neutral setting as a continuous process in continuous time. This allows the valuation of interest rate derivatives using the martingale approach. In particular, a solution is found for the value of a zero-coupon bond. This leads to a non-linear regression model for the yield to maturity, which is used to filter the state of the unobservable Markov chain.
dc.description.statementofresponsibilityRobert J. Elliot and Craig A. Wilson
dc.description.urihttp://www.springer.com/business/operations+research/book/978-0-387-71081-5
dc.identifier.citationHidden Markov Models in Finance, 2007 / Mamon, R., Elliott, R. (ed./s), vol.104, pp.15-30
dc.identifier.doi10.1007/0-387-71163-5_2
dc.identifier.isbn0387710817
dc.identifier.isbn9780387710815
dc.identifier.urihttp://hdl.handle.net/2440/45954
dc.language.isoen
dc.publisherSpringer
dc.publisher.placeNew York, USA
dc.relation.ispartofseriesInternational Series in Operations Research & Management Science ; 104
dc.source.urihttps://doi.org/10.1007/0-387-71163-5_2
dc.titleThe term structure of interest rates in a hidden markov setting
dc.typeBook chapter
pubs.publication-statusPublished

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