Vacisek Model

Hi all

A quick one guys. May anyone tell me how does the formulae for Bond prices given in the tables link to the one in the notes. In the notes we have Alpha, Mu and sigma as parameters.

How can one map the parameters in the formulae given in the notes to those given in the tables.

Thank you

 

D(tau) in the tables is the same as b(tau) in the CNs.

R in the tables is just the short rate r(t).

L in the tables is the long forward yield, i.e. the limit of the forward yield f(t,T) as T->infinity.

Starting from the formula for the instantantneous forward yield at the top of p20 in the CNs, if you let T->infinity you get:

L = f(t,infinity) = mu - sigma^2/(2*alpha^2)

So, if you replace D(tau), R and L in the formula in the tables, you should get the formula in the CNs.