Regime-Switching Stochastic Volatility and Short-Term Interest Rates

@article{Kalimipalli2001RegimeSwitchingSV,
  title={Regime-Switching Stochastic Volatility and Short-Term Interest Rates},
  author={Madhu Kalimipalli and Raul Susmel},
  journal={Capital Markets: Asset Pricing \& Valuation},
  year={2001}
}
In this paper, we introduce regime-switching in a two-factor stochastic volatility model to explain the behavior of short-term interest rates. The regime-switching stochastic volatility (RSV) process for interest rates is able to capture all possible exogenous shocks that could be either discrete, as occurring from possible changes in the underlying regime, or continuous in the form of `market-news' events. We estimate the model using a Gibbs Sampling based Markov Chain Monte Carlo algorithm… Expand

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