Exercise 15.8 In the quadratic Gaussian model, suppose that the spot rate is given by r(t) = (y(t) + α)2, where

under Q. Here,

a, σ, and α are some constants. Assuming that the discountbond price is given by

show that

See Pelsser (1997) for details.

Transcribed Image Text:

dy-aydt+odz*, 0