Dr Mikael Elhouar

Elhouar, M. 2008, 'Finite-dimensional realizations of regime-switching HJM models', Applied Mathematical Finance, vol. 15, no. 4, pp. 331-354.
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This paper studies Heath-Jarrow-Morton-type models with regime-switching stochastic volatility. In this setting the forward rate volatility is allowed to depend on the current forward rate curve as well as on a continuous time Markov chain y with finitely many states. Employing the framework developed by Bjork and Svensson we find necessary and sufficient conditions on the volatility guaranteeing the representation of the forward rate process by a finite-dimensional Markovian state space model. These conditions allow us to investigate regime-switching generalizations of some well-known models such as those by Ho-Lee, Hull-White, and Cox-Ingersoll-Ross.