Abstract
In this paper, a finite-state mean-reverting model for the short rate, based on the continuous-time Ehrenfest process, will be examined. Two explicit pricing formulae for zero-coupon bonds will be derived in the general and special symmetric cases. Its limiting relationship to the Vasicek model will be examined with some numerical results.
Publisher
Cambridge University Press (CUP)
Subject
Statistics, Probability and Uncertainty,General Mathematics,Statistics and Probability