1. Consider the Vasicek model
Financial Engineering Lab
dr = β(µ − r)dt + σdWQ.
Lab 11
For the three parameter sets [β,µ,σ,r(0)] given by [5.9,0.2,0.3,0.1],[3.9,0.1,0.3,0.2] and [0.1,0.4,0.11,0.1], plot the term structure up to 10 time units (i.e, plot yield versus time). Now for each of the three parameter sets, plot yield curves versus maturity up to 500 time units for ten different values of r(0).
Put down your observations in the report.
2. Consider the CIR model
− r)dt + σ√rdW Q.
dr = β(µ
For the three parameter sets [β,µ,σ,r(0)] given by [0.02,0.7,0.02,0.1],[0.7,0.1,0.3,0.2] and [0.06,0.09,0.5,0.02], plot the term structure up to 10 time units (i.e, plot yield versus time). For the parameter set [β,µ,σ] given by [0.02,0.7,0.02] and with r(0) = 0.1 : 0.1 : 1, plot yield curves versus maturity for 600 time units. Put down your observations in the report.
