Suppose that a = 0.1, b = 0.08, and = 0.015 in Vasicek's model with the

Question:

Suppose that a = 0.1, b = 0.08, and σ = 0.015 in Vasicek's model with the initial value of the short rate being 5%. Calculate the price of a one-year European call option on a zero-coupon bond with a principal of $100 that matures in three years when the strike price is $87.

Strike Price
In finance, the strike price of an option is the fixed price at which the owner of the option can buy, or sell, the underlying security or commodity.