In the Vasieck (1977) Model, You Are Given That $d r _ { t } = \kappa \left( \theta - r _ { t } \right) d t + \sigma d W _ { t }$

question 20

Multiple Choice

In the Vasieck (1977) model, you are given that $d r _ { t } = \kappa \left( \theta - r _ { t } \right) d t + \sigma d W _ { t }$ where $k = 0.5$ , $\theta = 0.06$ , $\sigma = 0.10$ , and the current short rate of interest is $r _ { 0 } = 0.08$ . What is the expected standard deviation of the short rate of interest one year hence?

• A) 0.08
• B) 0.09
• C) 0.10
• D) 0.11

---

Definitions:

Population Standard Deviation

The measure of variability that encompasses all the values in a given population.

Point Estimate

A single value (or point) that serves as the best guess or best estimate of a population parameter (like the mean or proportion).

Point Estimate

A single value or statistic used to estimate a population parameter.

Proportion

A statistical measure that reflects the fraction or percentage of the total number of items or cases that fall within a certain category or exhibit a particular attribute.