Site Accessibility Statement
Wilfrid Laurier University Leaf
November 1, 2014

Canadian Excellence

Madhu Kalimipalli




Contact:

email: Madhu Kalimipalli
phone: 519.884.0710
ext: 2187


Documents


Madhu Kalimipalli

2004-05 FIN: Effects of Regime Switching and Stochastic Volatility on T-Bill Option Prices (Working Paper Abstract)


Kalimipalli, M., & Susmel, R.

published: 2004 | Research publication | Working Paper - Finance

ABSTRACT: In this paper, we examine the option pricing implications of introducing regime-switching specification in the two-factor interest rate models. In particular, we examine if the volatility shocks from regime-switching carry any incremental information beyond SV for option prices. We model the volatility of short-term interest rates as a stochastic volatility process whose mean is subject to shifts in regime. We find that the stochastic volatility models typically generate lower historical volatilities and hence lower option prices than constant volatility and GARCH models. Consistent with previous evidence, we find that introducing switching in a SV model has economic significance, especially during high volatility periods.

Download the article at: mailto: mkalimip@wlu.ca

revised Dec 9/04

View all Madhu Kalimipalli documents