one-factor Vasicek model
The one-factor Vasicek model is the one-factor Hull-White model of Example 6.5.1 with constant…
The one-factor Vasicek model is the one-factor Hull-White model of Example 6.5.1 with constant parameters,
where a, b, and σ are positive constants and (t) is a one-dimensional Brownian motion. In this model, the price at time t ∈[0, T] of the zero-coupon bond maturing at time T is
In the spirit of the discussion of the short rate and the long rate in Subsection 10.2.1, we fix a positive relative maturity and define the long rate L(t) at time t by (10.2.30):