Question

Suppose that in a risk-neutral world the Vasicek parameters are $a=0.1, b=0.03$, and $\sigma=0.01$. What is the price of a 5 -year zero-coupon bond with a principal of $$\$ 1$$ when the short rate is $2 \%$.

   Suppose that in a risk-neutral world the Vasicek parameters are $a=0.1, b=0.03$, and $\sigma=0.01$. What is the price of a 5 -year zero-coupon bond with a principal of $$\$ 1$$ when the short rate is $2 \%$.

Options, Futures, and Other Derivatives

Options, Futures, and Other Derivatives

John C. Hull 10th Edition

Chapter 31, Problem 4

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03$ and $a=0.1$, so the mean reversion level is: $$ \text{Mean Reversion Level} = \frac{0.03}{0.1} = 0.3 $$ Show more…

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Suppose that in a risk-neutral world the Vasicek parameters are $a=0.1, b=0.03$, and $\sigma=0.01$. What is the price of a 5 -year zero-coupon bond with a principal of $$\$ 1$$ when the short rate is $2 \%$.

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