Suppose that the yield, AR, on a zero-coupon bond follows the process dR = dt + dz
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Suppose that the yield, AR, on a zero-coupon bond follows the process
dR = μdt + σdz
where μ and σ are functions of R and t, and dz is a Wiener process. Use Ito's lemma to show that the volatility of the zero-coupon bond price declines to zero as it approaches maturity.
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