The zero coupon bond pricing formula under the Vasicek model depends on three parameters: *, *, and , and the current short-term interest rates, ro.

The zero coupon bond pricing formula under the Vasicek model depends on three parameters: γ*, *, and σ, and the current short-term interest rates, ro. How does the spot rate r(r) = - ln (Z(r, τ))/ τ depend on each of these parameters? Assume the current short-term rate r0 = 2%. Using the parameter values in Table 15.3 as a baseline case:
(a) Plot on a graph the term structure of interest rates for three choices of γ*, keeping the remaining parameters constant.
(b) Do the same as in Part (a), but vary *.
(c) Do the same as in Part (a), but vary σ;