Let r follows the process drt = (r - rt)dt + dXt Use Ito's Lemma to compute
Question:
drt = γ(r - rt)dt + σdXt
Use Ito's Lemma to compute the law of motion of P = F(r), for F(X) given by
(a) F(r) = A + B r where A, B are two constants.
(b) F(r) = e A-B r where A, B are two constants, and B > 0.
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Fixed Income Securities Valuation Risk and Risk Management
ISBN: 978-0470109106
1st edition
Authors: Pietro Veronesi
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