Abstract: By the method of measure transformation and no arbitrage pricing theory, the explicit analytical formula of warrant bonds was obtained when the risky asset followed the Markov-modulated jump diffusion process and the market interest rate was stochastic. Moreover, a numerical analysis was provided by the Monte Carlo method, and the value of warrant bonds was compared when the risky asset satisfied different financial models.

Key words: Markov-modulated model, stochastic interest rate, warrant bonds