An Interest-Rate Model with Regime-Switching Mean-Reversion Level

In this thesis we consider a regime-switching model for the short-term interest-rate. In particular, we deal with an Ornstein-Uhlenbeck process involving a mean-reversion level that is guided by a continuous-time, finite-state Markov chain. We discuss finite-dimensional, recursive filters for the switches in regime and related processes employing a change to an idealized measure. Additionally, we consider a bond pricing formula in a hidden Markov model (HMM), which reduces the issue of pricing zero-coupon bonds to a filtering problem.