Rework the previous exercise, but using the Cox, Ingersoll, and Ross model, whose bond pricing formula is in Equation 15.70. Use the following parameters as a baseline case: γ* = 0.3807, r* = 7.2%, and α = 0.0548. For each plot, vary γ *, r* and α.
In Exercise 2
(a) Plot on a graph the term structure of interest rates for three choices of γ*, keeping the remaining parameters constant.
(b) Do the same as in Part (a), but vary *.
(c) Do the same as in Part (a), but vary σ;