Exercise 15.1 Suppose that a solution to the SDE (15.1) exists and is integrable.

Show that the mean spot rate, M(t) = E[r(t)], is given by

provided that a ̸= 0. Hint: First, obtain the ODE for M(t).

Transcribed Image Text:

M(t)=m+(r(0) - m) eat, t0,