Exercise 15.9 In the Vasicek model, the spot-rate process follows the SDE (15.26) under Q. Using (15.33),

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Exercise 15.9 In the Vasicek model, the spot-rate process follows the SDE

(15.26) under Q. Using (15.33), obtain the SDE of r(t) under the forwardneutral measure QT , and solve it to derive the distribution of log vT (T, τ ).

Calculate the expectation EQT t [{vT (T, τ ) − K}+] directly to derive the call option premium (15.35).

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