Regime switching process with 2 states

In a simple regime switching model with n states, the volatility can take n values σ1,⋅⋅⋅n. The volatility is selected according to a state index i(t) [1,⋅⋅⋅,n], and the dynamics for the index is specified by the transition probabilities p(i j). The probabilities obey the condition j p(i j) = 1. In a given state i, the price follows a random walk (with Gaussian or Student innovations) with constant volatility σi.

These figures correspond to a process with 2 states, with the parameters: