Bond pricing formulas for Markov-modulated affine term structure models

This article provides new developments in characterizing the class of regime-switching exponential affine interest rate processes context pricing a zero-coupon bond. A finite-state Markov chain continuous time dictates random switching time-dependent parameters such processes. We present exact and approximate bond formulas by solving system partial differential equations minimizing an error functional. The price expression exhibits representation that shows how it is explicitly impacted matrix coefficient functions short models. validate numerically examining Vasicek model.