Question: 17. Using Monte Carlo, simulate the process dr = a(b r)dt + dZ, assuming that r = 6%, a = 0.2, b = 0.08,

17. Using Monte Carlo, simulate the process dr = a(b − r)dt + σdZ, assuming that r = 6%, a = 0.2, b = 0.08, φ = 0, and σ = 0.02. Compute the prices of 1-, 2-, and 3-year zero-coupon bonds, and verify that your answers match those of the Vasicek formula.

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