In the two-factor extension of Vasicek given in Section 31.5, derive the differential equations which must be
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In the two-factor extension of Vasicek given in Section 31.5, derive the differential equations which must be satified by a bond price, P(t,T). Use this to derive differential equations that must be satisfied by A(t,T), B(t,T), and C(t,T) in P(t,T)=A(t,T)e-B(t,T)r-C(t,T)u. Show that the expressions given for B(t,T) in equation (31.7) and C(t,T) in equation (31.13) satisfy these equations.
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The differential equation satisfied by the bond price P t T ...View the full answer
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