Question: Solve the equation with final data V(T) = 1. This is the value of a coupon bond when there is a known interest rate, r(t).

Solve the equation

dV +K(t) = r(t)V, dt

with final data V(T) = 1. This is the value of a coupon bond when there is a known interest rate, r(t). What must we do if interest rates are not known in advance?

dV +K(t) = r(t)V, dt

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To solve the given differential equation Vt Kt rt Vt Start by using the method of integrating factors multiply both sides of the equation by an integrating factor ... View full answer

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