Bond prices in the Vasicek model

:: Bond prices in a general one-factor short rate model ::

Bond prices in the Vasicek model

:: Exercises ::

  1. Consider parameters of the Vasicek model from the previous exercises session. Select a value of the short rate and plot the term structures for a couple of market price of risk values.

  2. Again, consider parameters of the Vasicek model and select a value of the market price of risk. Plot term structures for different values of the short rate. Prove that as tau approaches infinity, the interest rates with maturity tau converge to
    obr

  3. Once more, consider parameters of the Vasicek model from the previous exercises session. Suppose that the limit of the term structures is equal to three fourths of the limiting value of the short rate. Compute the market price of risk.

  4. Consider the parameters (i.e., parameters of the short rate and the market price of risk). Find an example of the current value of the short rate, for which the corresponding term structure is not monotone.

  5. Vasicek model problem on an internet discussion forum:
    obr
    Can you solve it?


Financial derivatives - exercises, 2014
Beáta Stehlíková, FMFI UK Bratislava


E-mail: stehlikova@pc2.iam.fmph.uniba.sk
Web: http://www.iam.fmph.uniba.sk/institute/stehlikova/