We employ conformal symmetries to provide a generic tractable framework for interest rate modelling. The approach combines calibration flexibility of market models with tractability and computational efficiency of shot rate models. The methodology enables robust calibration to the whole variety...

The paper investigates the effect of interest rate variance on the shape of the yield curve using a bivariate 2-state Markov switching model for the short rate changes and the yield curve slope. The two states are characterized by the variance of the short rate changes: Low and high variance. In...

We develop the regime-switching default risk (RSDR) model as a generalization of Merton's default risk (MDR) model. The RSDR model supports an expanded range of asset probability density functions. First, we show using simulation that the RSDR model incorporates sudden changes in asset values...