Consider the multifactor extension of the CIR model, where the short rate r(t) is defined by Here,

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Consider the multifactor extension of the CIR model, where the short rate r(t) is defined by

n r(t) = [Xi(t). i=1

Here, X_i(t), i = 1, ··· ,n, are uncorrelated processes of the one-factor CIR type as governed by

- dX; (t) = i[yi X(t)] dt + piX; (t) dZi (t) under the risk neutral measure. Show that the bond price function B(t,T ) is given by

$n n - B(t, T) = expa; (T t) - bi (T t)X; \i=1 i=1 where t = T - t and a (T): = bi(t) = 0 = 2i Yi 2 Pi In X$

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Mathematical Models Of Financial Derivative

ISBN: 9783642447938

2nd Edition

Authors: Yue-Kuen Kwok

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Question Posted: Nov 30, 2023 07:32 AM

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Consider the multifactor extension of the CIR model, where the short rate r(t) is defined by Here,

Question:

n r(t) = [Xi(t). i=1

Step by Step Answer:

To derive the bond price function BtT in the multifactor extension of the Cox IngersollRoss CIR mode...View the full answer

Mathematical Models Of Financial Derivative

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