
Vasicek model
Hi can you please help me with this problem,
For the Vasicek interest rate model with short rate process dr_{t} = K(θr_{t})dt + σ dW_{t}, show that the bond price B(t,T,r) can be found as B(t,T,r)=exp[A(t,T)r_{t}+Z(t,T)] for deterministic functions A(t,T) and Z(t,T). Find A(t,T) and Z(t,T).

Re: Vasicek model
Hey nirmal019.
You need to use the generalized form of Ito's lemma to get the integral portion for the nonrandom and random components. Do you know these identities? (I'm sure you have been given these by your lecturer/professor).