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Consider the Vasicek short rate model dr = x(0 – r)dt + odW where k = 0.1,0 = 0.08, 0 = 0.015. The initial value of the short rate is 0.05. Consider a zero-coupon bond that matures in three years and has a principal of S200. The strike price is $100. With this zero-coupon bond as the underlying asset, find the price of a one-year European put option.

Consider the Vasicek short rate model dr = x(0 – r)dt + odW where k = 0.1,0 = 0.08, 0 = 0.015. The initial value of the short rate is 0.05. Consider a zero-coupon bond that matures in three years and has a principal of S200. The strike price is $100. With this zero-coupon bond as the underlying asset, find the price of a one-year European put option.

Advanced Engineering Mathematics
Advanced Engineering Mathematics
10th Edition
ISBN:9780470458365
Author:Erwin Kreyszig
Publisher:Erwin Kreyszig
Chapter2: Second-order Linear Odes
Section: Chapter Questions
Problem 1RQ
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Consider the Vasicek short rate model dr = x(0 – r)dt + odW where k = 0.1,0 = 0.08, o = 0.015. The initial value of the short rate is 0.05. Consider a zero-coupon bond that matures in three years and has a principal of $200. The strike price is $100. With this zero-coupon bond as the underlying asset, find the price of a one-year European put option.
Transcribed Image Text:Consider the Vasicek short rate model dr = x(0 – r)dt + odW where k = 0.1,0 = 0.08, o = 0.015. The initial value of the short rate is 0.05. Consider a zero-coupon bond that matures in three years and has a principal of $200. The strike price is $100. With this zero-coupon bond as the underlying asset, find the price of a one-year European put option.
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