Quotation Kurt, Kevin, Frey, Rüdiger. 2020. Markov-modulated Affine Processes. 13th European Summer School in Financial Mathematics, Vienna, Austria, 31.08.-04.09.


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Abstract

Affine processes have become an indispensable instrument in any toolbox for financial modelling due to their computational tractability and analytical flexibility. Roughly speaking, an affine process is characterized by the requirement that its drift, its diffusion matrix and the compensator of its jumps have affine dependence on the state variable. We extend this idea by allowing the translation part of the underlying affine functions to depend on some Markov process. This extension preserves the tractability of affine processes and allows for richer models in various financial applications. Our framework formalizes and generalizes a number of established models. On top of that,we introduce novel models, which are capable of capturing empirical features of financial data that are not explainable by means of standard affine processes, but are at the same time easy to calibrate.

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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Paper presented at an academic conference or symposium
Language English
Title Markov-modulated Affine Processes
Event 13th European Summer School in Financial Mathematics
Year 2020
Date 31.08.-04.09.
Country Austria
Location Vienna
URL https://www.univie.ac.at/summer_school_MathFinance/index.html

Associations

People
Kurt, Kevin (Details)
Frey, Rüdiger (Details)
Organization
Institute for Statistics and Mathematics IN (Details)
Research areas (ÖSTAT Classification 'Statistik Austria')
1137 Financial mathematics (Details)
1165 Stochastics (Details)
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