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It is said that :

Further, following are the assumptions of

**A typical distribution is a regime-switching volatility model: the regime (state) switches from low to high volatility, but is never in between. A distribution is “regime switching” if it changes from high to low volatility.**Further, following are the assumptions of

**regime-switching volatility model**:**1. different market regimes exist with high or low volatility.**

2. The mean is assumed constant,

3. If interest rates are drawn from one regime, the distribution is normally distributed.

4. If interest rates are drawn from more than one regime, this unconditional distribution need not be normally distributed.

Can someone explain the reasons for assumptions 3 & 4.

2. The mean is assumed constant,

3. If interest rates are drawn from one regime, the distribution is normally distributed.

4. If interest rates are drawn from more than one regime, this unconditional distribution need not be normally distributed.

Can someone explain the reasons for assumptions 3 & 4.

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