Elliott, Robert; Nishide, Katsumasa - In: Annals of Finance 10 (2014) 3, pp. 509-522
We consider a Markov switching regime and price a discount bond using a CIR-type short rate model. An explicit formula is obtained for the bond price which includes the solution of a matrix ODE. Our model is easy to calculate and captures the effect of regime uncertainty in the price and term...