Suppose that x is the yield on a perpetual government bond that pays interest at the rate
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Suppose that x is the yield on a perpetual government bond that pays interest at the rate of $1 per annum. Assume that x is expressed with continuous compounding, that interest is paid continuously on the bond, and that x follows the process
dx = a(x0 - x) dt + sxdz
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The process followed by B the bond price is from Its lemma In this case s...View the full answer
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