Suppose that in a risk-neutral world the Vasicek parameters are a=0.15, b = 0.025, and =0.012.

Question:

Suppose that in a risk-neutral world the Vasicek parameters are a=0.15, b = 0.025, and σ =0.012. The market price of interest rate risk is −0.2. What are the risk-neutral and real-world processes for (a) the short rate and (b) a zero-coupon bond with a current maturity of 3 years?

Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...