Question: The canonical two-factor Vasicek model for the short rate, r(t), assumes dY1(t) = 1Y1(t)dt + dW1(t) (20.56) where W1(t) and W2(t) are Q-independent Brownian motions

The canonical two-factor Vasicek model for the short rate, r(t), assumes
dY1(t) = ˆ’λ1Y1(t)dt + dW1(t) (20.56)

The canonical two-factor Vasicek model for the short rate, r(t),

where W1(t) and W2(t) are Q-independent Brownian motions with case account takes as numeraire. Zero-coupon bond prices are then given by

The canonical two-factor Vasicek model for the short rate, r(t),

(20.57) r(t) = 0 + 1Yi (f) + 2Y2(f) (20.58) Z Ele 0tT (20.59) r(s)ds

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