Who explain short-term interest rate by a stochasti
Who illustrated short-term interest rate through a stochastic differential equation?
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Oldrich Vasicek illustrated the short-term interest rate through a stochastic differential equation of the form:
dr = µ(r, t) dt + σ(r, t) dX.
The bond pricing equation is a parabolic partial differential equation, same to the Black–Scholes equation.
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