Exercise 23.2.2 Consider a short rate model such that the two equally probable short rates from the
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Exercise 23.2.2 Consider a short rate model such that the two equally probable short rates from the current rate r are reμ+σ
√
t and reμ−σ
√
t , where μ may depend on time. Verify that this model can result from the binomial interest rate tree when the volatilities σj are all equal to some constant σ. (The μ is varied to fit the term structure.)
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Related Book For 
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ISBN: 9780521781718
1st Edition
Authors: Yuh-Dauh Lyuu
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