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Practice Fixed income

Price a zero-coupon bond under Vasicek

Medium+25 pointsAbout 45 minutesFixed income

UsesStochastic Calculus 2.7 Stochastic differential equations

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Simulate a mean-reverting short rate, price a zero-coupon bond by Monte Carlo, and compare with the closed form.

This problem opens with Stochastic Calculus for Finance. It draws on the modules below.