Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Show that in Cox-Ingersoll-Ross interest rate model: dR(t) = (a - &R(t))dt + sigma Squareroot R(t)dW^Q(t) the price of the zero-coupon bond B(t, T) =
Show that in Cox-Ingersoll-Ross interest rate model: dR(t) = (a - &R(t))dt + sigma Squareroot R(t)dW^Q(t) the price of the zero-coupon bond B(t, T) = exp(-R(t)C(t, T) - A(t, T)] can be written as C(t, T) = sin h(gamma(T - t))/gamma cos h (gamma(T - t)) + 1/2 b sin h(gamma(T - t)) A(t, T) = -2a/sigma^2 log (gamma(T - t))/gamma cos h(gamma(T - t)) + 1/2b sin h(gamma(T - t))], where gamma = 1/2 Squareroot sigma + 2 sigma^2, C^a(t, T) = bC(t, T) + 1/2 sigma^2 C^a (t, T) - 1, A (t, T) = -aC(t, T)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started