Hi - Appreciate answers to either or both of the quick queries below on Chapter 18 term structure of interest rates: 1) pg 13 introduces "a bank or money market account process" and defines dBt = rt*bt*dt. Where B0=1. Are we discussing a regular bank savings account and What does this formula mean (the change in bank balance over a short period?) 2) Pg 16 section 3.2 vasicek model includes an example simulation of a short rate but doesn't include any axis labels. (Tut, tut). Should these be rt for y-axis and time for x axis?
1) Yes, imagine it to be money in a savings account that offers an interest rate of r(t) over the small interval of time between t and t + dt. A single unit of currency is paid into the account at time t=0. 2) Yes, it's a simulation of r(t) over time t. Axis labels would be helpful here
