Question: Consider the Vasicek model where the current short-term rate is 2%, the long-run mean is 6%, the instantaneous standard deviation is 10%, and the rate

Consider the Vasicek model where the current short-term rate is 2%, the long-run mean is 6%, the instantaneous standard deviation is 10%, and the rate of adjustment is 0.4. Derive the interest rates for 1,2,3,4, and 5 year maturities.

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Vasicek 1977 assumes the following meanreverting process for the shortterm rate Eq 84 dr rdt dz wher... View full answer

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