1. Suppose that a = 0:1 and b = 0:1 in both the Vasicek and the Cox, Ingersoll, Ross model. In both models, the initial short rate is 10% and the initial standard deviation of the short-rate change in a short time Compare the prices given by the models for a zero-coupon bond that matures in year 10.
2. Suppose that a = 0:1, b = 0:08, and σ = 0:015 in Vasicek's model, with the initial value of the short rate being 5%. Calculate the price of a 1-year European call option on a zero-coupon bond with a principal of $100 that matures in 3 years when the strike price is $87.