Abstract
A four-parameter random walk model for the short rate of interest is described in Wilmott et al. (15). For pricing zero-coupon bonds from the resulting partial differential equation based on this short rate model, a certain form of solution requires the solution of two first-order nonlinear ordinary dif- ferential equations. In the present paper we show the interesting result that, for obtaining solutions of the bond pricing equation, neither of these two equa- tions requires any differential equation solving techniques; in fact, both these first-order nonlinear differential equations can be solved simply by elementary integration. We include the corresponding yield curve and its asymptotic be- havior. We identify our results obtained here for the general four-parameter model in the two special cases of Vasicek (14) and Cox, Ingersoll and Ross (4) with those given by these authors.
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