Consider the Vasicek Model under risk neutral probability measure drt ( rt)dt dWt (16 3) with r0 0 01, 0 2, 0 01, 0 05 Write a Matlab program to simulate a sample path of rt from t 0 to t 1 ...

clear all 2clc 3m84 4 dt1m sr00 ...

Consider the Vasicek Model under risk neutral probability measure: drt = ( rt)dt + dWt

Question:

Consider the Vasicek Model under risk neutral probability measure:
drt = α(μ − rt)dt + σ dWt (16.3)
with r0 = 0.01, α = 0.2,μ = 0.01, σ = 0.05.
Write a Matlab program to simulate a sample path of rt from t = 0 to t = 1.

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For book-img-for-question

An Introduction to the Mathematics of Financial Derivatives

ISBN: 978-0123846822

3rd edition

Authors: Ali Hirsa, Salih N. Neftci

See More Books

Question Posted: Apr 29, 2016 03:45 PM

See More Questions

Consider the Vasicek model where the current short-term rate is 2%, the long-run mean is 6%, the instantaneous standard deviation is 10%, and the rate of adjustment is 0.4. Derive the interest rates...
Consider the Vasicek model of interest rate Let r = 5%. Do the following: (a) Let r0 be the short term interest rate today (you can find this value on any financial newspaper or on the Federal...
Consider the Vasicek model of interest rates. Download daily data on the one-month T-bill rate from the Federal Reserve web site and use these data to estimate Î³, r and Ï. This...
Consider the points P(1, 2, k) and Q(2,-1, 1) and let u be the equivalent vector to the directed line segment PO. If us = 2, what is the value of k? A-1 OB. 1 OC2 D. 3 O EO
The following table shows the total costs and total benefits in billions for four different antipollution programs of increasing scope. Which program should be undertaken?Why? Program Total Cost...
Assess critically the likely standard of individual compared with group or team performance. Explain what is meant by (a) the risky-shift phenomenon, (b) groupthink, (c) brainstorming.
E2-6 Journal entry to record income from discontinued operations Pastel Corporation purchased a 30 percent interest in Lumpia Corporation on January 1, 2016, by issuing 10,000 shares with a market...
Use the information about Majestic Trucking Inc. (Majestic) provided in Problem P3-20 to do the following: a. Prepare all necessary transactional journal entries for the year ended December 31, 2017....
1-Why did Wells Fargo OFS decide to develop a Balanced Scorecard? Develop the objectives, linkage map, and measures for the remaining two strategic themes: -Increase revenue per customer -Reduce cost...
Florida Citrus Mutual, an agricultural cooperative association for citrus growers in Florida, needs to predict what will happen to the price and output of Florida oranges under the conditions below....
Explain why it might be reasonable to model interest rates by a mean-reverting process. What is the fundamental difference that makes this (potentially) appropriate for interest rates but not for...
Suppose you are given the following information on the spot rate rt: The rt follows: drt = rtdt + rtdWt The annual drift is = 0.01 The annual volatility is = 12% The current spot rate is...
Consider a consistent system of three linear equations in three variables. Discuss the nature of the system and its solution set if the reduced form of the augmented coefficient matrix has (A) One...
How do we design an electromagnetic sensor?
What is a virtual breadboard?
Joe secured a loan of $13,000 four years ago from a bank for use toward his college expenses. The bank charges interest at the rate of 9%/year compounded monthly on his loan. Now that he has...
Answer these two questions 1 32 2 Number of Units Sold 3 4 ! Direct Material units per unit of production 5 i 6 Total Direct Materials Used 7! 8 Price Per Unit 9 10 Cost of Direct Materials 11 12 13...
Give an algorithm for converting a tree to its mirror. Mirror of a tree is another tree with left and right children of all non-leaf nodes interchanged. The trees below are mirrors to each other....
Liquid bromine can be prepared by passing chlorine gas through an aqueous solution of sodium bromide. How many milliliters of bromine are produced from the reaction of 10.0 g of Cl 2 and 10.0 g of...
Figure displays a 12.0 V battery 3 four uncharged capacitors of capacitances C1 = 4.00F, C2 = 6.00F, and C3 = 3.00F. The switch is thrown to the left side until capacitor 1 is fully charged. Then the...
The rapid growth of C. R. Plastics over the last several years has resulted in the need for the company to expand production capacity. Historically, the company has run a single shift during the...
Three fair coins are tossed, and we let X1 denote the number of heads that appear. Those coins that were heads on the first trial (there were X1 of them) we pick up and toss again, and now we let X2...
Randomly select 100 purchases from your checkbook or 100 credit card purchases that you have made in the past year. Do not mix checks and credit card purchases; pick one or the other for this study....
An estimated 84 percent of enterprises now use cloud computing solutions involving multiple clouds, whereas less than 10 percent of large organizations employ just a single public cloud. Group of...
XYZ inc. was involved in a tax dispute with the national tax authority. The companys legal counsel estimates that there is a 75% likelihood that the company will lose the dispute and that the amount...
3 . Accounting.. How does depreciation impact financial statements, and what are the different methods of depreciation?

Consider the Vasicek Model under risk neutral probability measure: drt = ( rt)dt + dWt

Question:

Step by Step Answer:

clear all 2clc 3m84 4 dt1m sr00...View the full answer

An Introduction to the Mathematics of Financial Derivatives

Students also viewed these Finance questions