What is process for x in the traditional risk neutral world

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a. Suppose that an interest rate x follows the process

where a, x₀, and c are positive constants. Suppose further that the market price of risk for x is λ. What is the process for x in the traditional risk-neutral world?

b. Prove that, when the security f provides income at rate q, equation (27.9) becomes

Reference no: EM131241018

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